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An income tax or corporation tax charge is based on the amount of profits generated by the trade in the tax year. Guidance on the way in which such profits should be calculated has evolved through the courts over time, which has subsequently been incorporated into statute.

For corporation tax purposes, the profits of a trade must be calculated in accordance with generally accepted accounting practice, GAAP, (see B2.102), subject to any adjustment 'required or authorised by law in calculating profits for income tax purposes'¹.

Following amendment by Finance Act 2024, ITTOIA 2005, s 24(A) provides that the profits of a trade for income tax purposes must be calculated on the cash basis from the tax year 2024/25 onwards unless it is an excluded trade or an election is made to use GAAP (see B2.111)². Prior to this profits had to be calculated in accordance with GAAP (see B2.102), subject to any adjustment 'required or authorised by law in calculating profits for income tax purposes'. This was unless