Income Tax (Trading and Other Income) Act 2005 section 334A

Spreading on leaving cash basis and related election

Section 334A deals with what happens when a property business switches from the cash basis of calculating profits to the accruals basis (GAAP), and how the resulting adjustment income is spread over time.

• When a property business moves from the cash basis to the GAAP accruals basis, any resulting adjustment income must be spread equally over six tax years
• The spreading rules that already apply to trades leaving the cash basis (under sections 239A and 239B) are applied to property businesses with appropriate modifications
• An election is available to accelerate the charge, bringing a larger amount of the adjustment income into tax in a given year than the standard one-sixth spreading would require
• The trigger for these rules is specifically where a property business calculates profits on the cash basis for one tax year and then switches to GAAP for the following tax year