Taxes Consolidation Act 1997 section 76A

Computation of profits or gains of a company - accounting standards

Section 76A sets out the rules for computing a company's trading or professional profits for corporation tax purposes, including the treatment of changes in accounting policies, the adoption of new accounting standards, and the correction of accounting errors.

• A company's Case I or Case II profits must be computed in accordance with generally accepted accounting practice (GAAP), subject to any adjustments required or authorised by tax law.
• Where a company changes its accounting policy (other than by adopting a new or amended accounting standard), any retrospective adjustment recognised in opening reserves is taxable or deductible in the period the change is adopted, provided the amount has not already been taxed or relieved.
• Where a company adopts a new accounting standard or an amendment to a standard for the first time, the retrospective adjustment (the "relevant amount") is spread for tax purposes over five years from the date of adoption, rather than being taxed or deducted in full in a single period.
• Where a company corrects an accounting error, the tax treatment depends on whether the error is material or fundamental; material or fundamental errors are corrected retrospectively, while immaterial errors are dealt with in the current period, and in both cases prior period returns may need to be amended.