Finance Leasing Manual - FLM21.20

Schedule D Case I: basis for recognising income

Sir Thomas Bingham MR gave a helpful summary of the state of the general Schedule D Case I position in 1993 in Gallagher v Jones (66 TC 77). An important part of his judgment starts at page 123B:

'Conclusions: Despite the length of this judgment, the central issue is at root a very short one. The object is to determine, as accurately as possible, the profits or losses of the taxpayers' businesses for the accounting periods in question. Subject to any express or implied statutory rule, of which there is none here, the ordinary way to ascertain the profits or losses of a business is to apply accepted principles of commercial accountancy. That is the very purpose for which such principles are formulated. As has often been pointed out, such principles are not static: they may be modified, refined and elaborated over time as circumstances change and accounting insights sharpen. But so long as such principles remain current and generally accepted they provide the surest answer to the question which the legislation requires to be answered. As Pennycuick V.-C. pointed out in Odeon Associated Theatres Ltd. v Jones [1971] 1 WLR 442, different considerations arise where there is no accounting evidence or where there are two or more principles either or any of which is generally accepted. But those considerations do not apply here.'