When does adjustment income arise under section 333 of ITTOIA 2005?

Under the general rule in section 333, adjustment income arising from a change of accounting basis in a UK property business is treated as arising on the last day of the first period of account for which the new accounting basis is adopted. This determines the tax year in which the income is charged.

What is the depreciation exception for adjustment income under section 333?

When a change of accounting basis stems from a tax adjustment affecting how depreciation is calculated, the adjustment income does not arise immediately. Instead, it is only treated as arising when the relevant asset is realised, such as sold or disposed of, or written off, deferring the tax charge.

Can property business losses be set against adjustment income under section 333?

Yes. Adjustment income is treated as profits of the UK property business for the tax year in which it is charged to tax. This means property business losses brought forward under Part 4 of the Income Tax Act 2007 can be set against the adjustment income, potentially reducing or eliminating the charge.

How does section 333 apply when switching from the cash basis to the accruals basis?

When a UK property business switches from the cash basis to the accruals basis, previously unrecognised amounts such as rent receivable may generate adjustment income. This income is treated as arising on the last day of the first period of account under the new accruals basis and taxed in that year.

Income Tax (Trading and Other Income) Act 2005 section 333

Treatment of adjustment income

Section 333 sets out when adjustment income arising from a change of accounting basis in a UK property business is treated as arising, and how it interacts with loss relief.

Adjustment income is treated as arising on the last day of the first period of account under the new basis
Where the change of basis relates to a tax adjustment affecting depreciation, the adjustment income only arises when the relevant asset is realised or written off
Adjustment income counts as profits of the UK property business for loss relief purposes in the tax year it is charged to tax
Any property business losses brought forward can therefore be set against the adjustment income

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member