Commentary

B2.116 Spreading of adjustment income

Business tax
Business tax | Commentary

B2.116 Spreading of adjustment income

Business tax | Commentary

B2.116 Spreading of adjustment income

Spreading of adjustment income—leaving the cash basis

Where a business leaves the cash basis for small businesses from 2013/14 (see B2.112) any adjustment income may be spread over six tax years1. In each of the six tax years beginning with the one in which the whole amount of the adjustment income would otherwise be chargeable, the amount taxable equals one-sixth of the adjustment income2.

A trader may accelerate the charge to tax by electing for any part3 of the outstanding adjustment income to be taxed in a particular tax year4. The amount to be treated as income arising in the tax year must be specified in the election5. The time limit for the election is the first anniversary of 31 January following the end of the tax year to which it relates6. Where an election is made, the calculation for the spreading of the adjustment income for any subsequent tax year is made as if the amount of adjustment income (as reduced by any amounts previously calculated under the acceleration election) is reduced by the amount given by7:

where:

  1.  

         A is the additional amount treated as arising in the tax year for which the election is made and

  2.  

         T is the number of tax years remaining after

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