Income Tax (Trading and Other Income) Act 2005 section 25

Generally accepted accounting practice

Section 25 establishes the fundamental starting point for calculating trading profits for income tax purposes, requiring the use of generally accepted accounting practice unless the cash basis applies or the law requires a different treatment.

• Trading profits must be calculated in accordance with generally accepted accounting practice (GAAP), unless the cash basis applies, subject to any adjustments required or authorised by tax law.
• The requirement to follow GAAP relates only to the basis of calculation — it does not oblige traders to comply with Companies Act 2006 requirements regarding format, audit or disclosure.
• The section does not affect the special rules that apply to the calculation of profits of Lloyd's underwriters.
• GAAP generally requires profits to reflect accruals principles, taking account of debtors, creditors, and the value of stock and work in progress.