BIM37040 - Wholly & exclusively: statutory background: computation to accord with GAAP

Computation of trade, etc. profits - FA98/S42

The legislation now includes a specific requirement that, for Case I or II of Schedule D, profits be computed in accordance with GAAP. The legislation defines GAAP in terms that mean that the accounts must show ‘a true and fair view’.

For those who need the precise wording, FA98/S42 provides that for accounts beginning after 6 April 1999:

For the purposes of Case I or II of Schedule D the profits of a trade, profession or vocation must be computed in accordance with generally accepted accounting practice [GAAP] subject to any adjustment required or authorised by law in computing profits for those purposes.

And ICTA88/S836A (1) defines GAAP as follows:

In the Tax Acts, unless the context otherwise requires, ‘generally accepted accounting practice’ -

1. means generally accepted accounting practice with respect to accounts of UK companies that are intended to give a true and fair view, and
2. has the same meaning in relation to -

individuals,

entities other than companies, and

companies that are not UK companies,

as it has in relation to UK companies.