CFM33166 - Loan relationships: core rules: pre-2016 rules: GAAP: changes in accounting basis

CTA09/S315-319

CFM33110 explains the treatment of S315-S319 for current periods, where these provisions apply to changes in accounting basis both from a change in account policy or where there is a change in accounting basis required to comply with the loan relationship provisions.

For accounting periods that commenced before 2016, the operation of these rules was significantly different.

The pre-2016 rules sought to tax amounts recognised in the company's accounts wherever the amounts appeared. This could therefore include amounts recognised in the accounts as a 'prior period adjustment' in respect of a change of accounting policy.

However, not all changes in accounting policy would result in amounts being recognised as a prior period adjustment. In particular, where a company transitioned from UK GAAP to IFRS, no prior period adjustment would typically be recognised. In such cases, S316 to S319 operated to ensure that transitional adjustments on loan relationships did not drop out of account.

Prior to 2016, S315 to S319 did not apply to changes in accounting basis as a result of changes other than a change in accounting policy. There was, therefore, a risk that amounts could fall out of account as a result of a statutorily enforced change of accounting basis where the parties to the loan relationship begin or cease to be connected. Rules at CTA09/S350 and S351 ensured that this does not happen. Those rules have now been subsumed into the operation of the new S315-319 provisions.

Change of Accounting Practice Regs

As a result of the introduction of IFRS, there was the potential for companies to be subject to significant transitional adjustments at the point they changed accounting practice. As a result, the government introduced specific rules to ensure that the correct amounts were brought into account on transition, and to spread certain transitional amounts over 10 years. These rules are explained at CFM76000.