Accounting policy and departures from GAAP

Produced by a Tolley Corporation Tax expert

Corporation Tax

Guidance

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This guidance note considers the accounting rules governing loan relationships and the tax law applicable if a company departs from those rules.

Background

The basic measure of the profits of a company chargeable to corporation tax in the UK is the profit before tax (PBT) figure as reported in its statutory accounts. Consequently, the tax return of a UK company is generally completed by taking the PBT for the financial period as reported for accounting purposes and making adjustments to that figure only to the extent expressly required by UK tax law. The accounting treatment of any transaction is therefore fundamental to its tax treatment. Understanding the basic accounting treatment of an item and its acceptability for tax purposes is a crucial part of preparing a tax computation.

For further information on the rules governing the computation of profits for corporation tax purposes and the required adjustments to accounting profits, see the Adjustment of profits ― overview guidance note.

UK companies are required to follow both commercial law and ‘generally accepted accounting practice’ (GAAP)

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