94 Conventional basis: general charge on receipts after change of basis

Summary

A charge to tax under Case IV of Schedule D arises in respect of sums received after a change of accounting basis where such receipts were earned before the change and are not included in the accounts prepared on the new accounting basis.

Details

(1) A charge to tax under Case IV of Schedule D is imposed on certain sums (described in subsection (2)) accruing to a trade or profession after a change of accounting basis which are earned before the change but which would otherwise not be taken into account for tax purposes. The charge arises where there is a change from a conventional basis to an earnings basis, and where there is a change from one conventional basis to another such that the new basis is nearer the earnings basis.

(2) The section applies to all sums arising from a trade or profession during any period before a change of accounting basis which have not been brought into account in the profits or gains of any period and are not otherwise chargeable to tax. The reference in subsection (2) to “value” in the phrase “their amount or value” is to be construed as enabling a deduction to be given for any expenses not otherwise allowable which would, but for the change in accounting basis, have been deducted in computing the profits/gains of the business.

(3) On a change in accounting basis of a profession, the amount of work in progress debited in the new accounts which is not counterbalanced by a credit in the old accounts is to be treated as a receipt for the year of assessment in which the change in basis occurs and charged to tax in accordance with this section.

(4) Work in progress for the purposes of this section has the same meaning as for section 90(4), that is, it includes, at the time of the change of basis, wholly or partially completed professional work and articles produced and materials used in undertaking such work.

(5) There is a change from a conventional basis to an earnings basis at the end of a period if the profits/gains of the next period are computed by reference to earnings. Where the profits/gains of 2 successive periods are computed by reference to different conventional bases, a change of basis occurs at the end of the earlier period.

Relevant Date: Finance Act 2021