Income Tax (Trading and Other Income) Act 2005 section 271A

Basis of calculation of profits: GAAP required

Section 271A sets out the circumstances in which a property business must calculate its profits using Generally Accepted Accounting Practice (GAAP) rather than the simpler cash basis.

• Certain types of business entity — companies, limited liability partnerships, corporate firms and trusts — must always use GAAP and cannot use the cash basis for their property business profits.
• A property business whose cash basis receipts exceed £150,000 in a tax year (reduced proportionately for a part-year) must use GAAP rather than the cash basis.
• Where two individuals share joint property income that is treated as split equally for tax purposes, both must use the same basis of calculation — so if one uses GAAP, the other must also use GAAP.
• A person carrying on a property business may voluntarily elect to use GAAP instead of the cash basis, provided the election is made within one year of the normal self-assessment filing date for the relevant tax year.