Income tax and GAAP
The profits of a trade must be calculated in accordance with generally accepted accounting practice, unless a person is eligible for and elects to calculate profits on the cash basis for income tax purposes (see B2.112). There are also exceptions for barristers in certain circumstances (see B5.610) and for Lloyd's underwriters (see Division E5.6)1.
'Generally accepted accounting practice' for this purpose means UK generally accepted accounting practice2. 'UK generally accepted accounting practice' (UK GAAP) means generally accepted accounting practice in relation to accounts of UK companies (other than accounts prepared under international accounting standards) that are intended to give a true and fair view. It has the same meaning in relation to individuals, entities which are not companies, non-UK companies and UK companies. UK GAAP generally requires account to be taken of debtors, creditors, and of the value of stock and work in progress.
ITTOIA 2005, s 25 does not require other compliance with the Companies Act 2006 or subordinate legislation made under that Act, nor does it impose any audit or disclosure requirements upon those not already subject to such requirements3.
Whilst these rules are now express statutory provisions, the position has developed out of case law. For instance, there was previously a concessionary basis for professional firms which was brought to an end by FA 1998, s 42 which initially required all businesses to calculate profits using an accounting basis which gives a true and fair