B2.114 Adjustments arising on a change of basis
The profits of a trade must usually be calculated in accordance with generally accepted accounting practice (GAAP, see B2.101–B2.102), subject to any adjustment required by specific legislation1.
Where there is a change from one accounting basis on which the profits of the trade are calculated to another, there is a risk that some receipts or expenses could fall out of account. Legislation has been in place for some time to take account of the adjustment income or expenses which could arise in such circumstances2. The provisions for income tax apply to professions or vocations in the same way that they apply to trades3. Both the income tax and corporation tax legislation apply where a person or company carrying on a trade changes, from one period of account to the next, the basis of computing the profits of the trade for tax purposes4.
These provisions do not apply to a change of basis which occurs on a change of ownership, because ITTOIA 2005, s 227 refers to a person changing the basis and CTA 2009, s 180 refers to a company changing the basis, and therefore the person or company must be the same before and after the