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S997 Income Tax Act 2007, S1127 Corporation Act 2010

Generally accepted accounting practice (GAAP) means:

• UK generally accepted accounting practice (UK GAAP); or
• for companies or other entities which prepare their accounts in accordance with international accounting standards (IAS), generally accepted accounting practice in relation to such accounts.

Individuals, not being ‘entities�, may not use IAS. Almost all UK companies have the choice of preparing their statutory (ie Companies Act) accounts either under IAS or using UK GAAP. Charities are an exception - they are not permitted to use IAS. Other entities, such as partnerships or trustees of a unit trust, may also use IAS.

The option for UK companies to use IAS for their statutory accounts was introduced for periods of account beginning on or after 1 January 2005.

An important point to note is that these rules only apply to the computation of profits for tax purposes. So, for example, a non-resident entity trading in the UK would not have to prepare UK GAAP accounts and, if their accounts are not prepared in accordance with IAS, they would have to prepare a computation which complied with UK GAAP for tax purposes.

Further guidance on the tax implications of IAS and UK GAAP, including a list of comparisons between the two sets of standards, can be obtained from the page ‘International accounting standards - the UK tax implications� .

The following guidance explains more about UK GAAP and IAS and their interaction:

BIM31020	Tax and accountancy: meaning of ‘UK generally accepted accounting principles�
BIM31025	Tax and accountancy: meaning of ‘international accounting standards�
BIM31027	Tax and accountancy: interaction of UK GAAP and IAS