Chapter BIM31095
| Published date | 22 November 2013 |
| Record Number | BIM31095 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
Over the years the Courts have been concerned with the time at which profits are to be brought into charge to tax, and a number of judge-made principles have emerged. But in more recent years they have become increasingly reluctant to discern judge-made tax principles which override generally accepted accounting practice. This trend began even before the introduction of the statutory requirement for taxable profits to be computed in accordance with GAAP, subject to adjustment for tax rules or principles which differ from the GAAP treatment.
What is, or is not, generally accepted accounting practice is a question of fact not law. Furthermore the Courts have recognised that accounting practice evolves over time. In principle, therefore, it is possible for a modern Court to come to a different decision from one taken in the past on the sole grounds that the accounting treatment has changed. This is because two cases can be distinguished on the basis of their accountancy facts, even though the other facts may be identical. The Courts therefore have proceeded to ensure that the law does not become tied to out-dated accountancy practice and to decisions taken where judges were forced to take a view of commercial practice in the absence of any accountancy evidence at all.
In Odeon Associated Theatres Ltd v Jones [1971] 48TC257 the courts were concerned with the accounting treatment of deferred repairs of a property transferred from one group member to another. Salmon LJ said at page 281B that:
‘In solving this question as to what is the true profit: …first… the ordinary principles of commercial accounting must, as far as practicable, be observed, and, secondly,… the law relating to income tax must not be violated… that is to say, by one means or another the full amount of the profits or gains must be determined.’
In the last thirty years three important cases have been decided. See Threlfall v Jones and Gallagher v Jones [1993] 66TC77, (the judgment in the Court of Appeal) Johnston v Britannia Airways Ltd [1994] 67TC99, and specifically on the timing of receipts, Symons v Lord Llewellyn Davies’ Personal Representative and Others [1982] 56TC630.
These cases were concerned, not with whether an item of income or expenditure is ever taxable or deductible, but when. In particular the Courts:
- emphasised that the taxable profits should not be computed on a basis divorced from the principles of commercial accountancy. Nolan LJ said in Threlfall at page 128I:
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