BIM74010 - Abolition of the cash basis: the new legislation

FA98 applies ‘true and fair’ to all

Provisions in Finance Act 1998 effected major changes to the bases that may be used for computing taxable profits. The legislation abolishes the cash basis for all except Barristers and Advocates in the early years of practice (see BIM74020).

Every trade, profession or vocation (not just professions) is now required to compute their profits for tax purposes on a basis which gives a ‘true and fair view’ of those profits, but subject to adjustments permitted or required by tax law (FA98/S42 (1)

In our view this represents no change in the law for traders or for companies. Case law shows that profits must be computed by applying the ordinary principles of commercial accountancy, which are themselves directed at arriving at a ‘true and fair view’. We consider that FA98/S42does no more than apply the same rules to professions and vocations.

Barristers and Advocates in the early years after they first begin to practice are allowed not to adopt a true and fair basis (see BIM74020) - FA98/S43/ITTOIA05/S160.