Commentary on Sections Overview Overview
678.This Chapter sets out the rules for dealing with two sorts of changes in the way profits of a trade are calculated.
679.The first sort of change is in the way the accounts are drawn up. The rule is that profits must be calculated on the basis of accounts drawn up in accordance with generally accepted accounting practice (see section 50 of FA 2004 and section 46 of this Act).
680.If there is a change in the basis on which accounts are drawn up, some receipts and expenses may fall out of account for tax purposes. This sort of change was dealt with originally in the rules that became section 104(4) to (7) of ICTA. Those rules were replaced by the rules in section 44 of, and Schedule 6 to, FA 1998. The 1998 rules were replaced by section 64 of, and Schedule 22 to, FA 2002.
681.The second sort of change is in the way tax adjustments are made. These are the adjustments “required or authorised by law in calculating profits for tax purposes” (section 46). This sort of change was dealt with for the first time by the 2002 legislation.
682.Section 1267 of this Act applies the rules to trades carried on in partnership.
683.The corresponding rules for income tax are in Chapter 17 of Part 2 of ITTOIA. The title of that Chapter is “adjustment income” because there is a charge on such income in section 228(2) of ITTOIA. For corporation tax a positive adjustment is treated as a trade receipt. So the title of this Chapter is more general.