Income Tax (Trading and Other Income) Act 2005

Chapter 7U.K.Adjustment income

Adjustment on change of basisU.K.

329Application of ChapterU.K.

(1)This Chapter applies if—

(a)a person carrying on a UK property business changes, from one period of account to the next, the basis on which profits of the business are calculated for income tax purposes,

(b)the old basis accorded with the law or practice applicable in relation to the period of account before the change, and

(c)the new basis accords with the law and practice applicable in relation to the period of account after the change.

(2)The practice applicable in any case means the accepted practice in cases of that description as to how profits of a UK property business should be calculated for income tax purposes.

(3)Subsections (3) to (6) of section 227 (what is meant by a person changing the basis on which profits are calculated) apply for the purposes of this section as they apply for the purposes of that section (but as if any reference to a trade were to a UK property business).

[F1329AApplication of Chapter where cash basis usedU.K.

This Chapter applies if—

(a)the profits of a property business are calculated—

(i)on the cash basis for a tax year (see section 271D), and

(ii)in accordance with GAAP (see section 271B) for the following tax year, or

(b)the profits of a property business are calculated—

(i)in accordance with GAAP for a tax year, and

(ii)on the cash basis for the following tax year.]

330Adjustment income and adjustment expenseU.K.

(1)An amount by way of adjustment must be calculated in accordance with section 231, which applies in relation to a UK property business as it applies in relation to a trade.

(2)If the amount produced by the calculation is positive, it is treated as income and charged to income tax under this Chapter.

It is referred to in this Chapter as “adjustment income”.

(3)If the amount produced by the calculation is negative, a deduction is allowed for it in calculating the profits of the business.

It is referred to in this Chapter as an “adjustment expense”.

(4)This section is subject to section 234 (no adjustment for certain expenses previously brought into account), which applies in relation to a UK property business as it applies in relation to a trade.

331Income chargedU.K.

[F2(1)]Tax is charged under this Chapter on the full amount of any adjustment income arising in the tax year.

[F3(2)This is subject to section 334A (spreading on leaving cash basis and related election).]

332Person liableU.K.

The person liable for any tax charged under this Chapter is the person receiving or entitled to the adjustment income.

Treatment of adjustment income and adjustment expenseU.K.

333Treatment of adjustment incomeU.K.

(1)Adjustment income is treated as arising on the last day of the first period of account for which the new basis is adopted.

(2)But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, adjustment income is treated as arising only when the asset to which it relates is realised or written off.

(3)Adjustment income is treated for the purposes of [F4Part 4 of ITA 2007](loss relief) as profits of the UK property business for the tax year in which tax is charged on it.

334Treatment of adjustment expenseU.K.

(1)An adjustment expense is treated as an expense of the business arising on the last day of the first period of account for which the new basis is adopted.

(2)But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, an adjustment expense is treated as arising only when the asset to which it relates is realised or written off.

[F5Spreading of adjustment income on leaving cash basisU.K.

334ASpreading on leaving cash basis and related electionU.K.

Sections 239A (spreading on leaving cash basis) and 239B (election to accelerate charge under section 239A) apply for the purposes of this Chapter as they apply for the purposes of Chapter 17 of Part 2, but as if—

(a)for section 239A(1) there were substituted—

“(1)This section applies if the profits of a property business are calculated—

(a)on the cash basis for a tax year (see section 271D), and

(b)in accordance with GAAP (see section 271B) for the following tax year.”, and

(b)any reference to section 239A or 239B were to the section concerned as applied by this section.]