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B2.114 Adjustments arising on a change of basis

The profits of a trade for companies must be calculated in accordance with generally accepted accounting practice (GAAP, see B2.101–B2.102), subject to any adjustment required by specific legislation¹. Using GAAP was the default method for unincorporated traders up to the tax year 2023/24 (see B2.112) but this has been replaced as the default method by the cash basis from 2024/25 although an election to use GAAP is available (see B2.111). The following rules would therefore apply where a trader decides to use the cash basis from 2024/25 onwards.

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.