Part 4: Income tax, corporation tax and capital gains tax Section 40: Changes in trading stock not made in course of trade Background note
When a business acquires or disposes of trading stock other than through its normal business, specific tax rules apply. The aim of those rules is to ensure that the full value of the stock is brought into account in computing profits for income tax and corporation tax purposes. The starting point for computing taxable profits is the profit shown in the accounts of the business, drawn up in accordance with recognised accounting practice. However, accounting rules do not always bring into account the market value. Tax legislation therefore provides for an adjustment to be made.
	It is also possible that the transfer pricing rules in Part 4 of TIOPA 2010 could apply. The outcome reached under transfer pricing could be lower than the market value that would be given by the CTA 2009 or ITTOIA 2005 rules. However, because the transfer pricing rules apply, the rules in CTA 2009 and ITTOIA 2005 are prevented from applying. The result is that the full value might not be brought into account for tax because of the way the transaction is treated in the accounts.
	This change ensures that the amount recognised for tax purposes for the acquisition or disposal is never less than the market value. Similar changes are made by section 41 on the cessation of a trade, and by section 42 in connection with the transfer of intangible fixed assets.