Adjustment incomeU.K.
35U.K.Chapter 17 (adjustment income) is amended as follows.
36U.K.After section 227 insert—
“227AApplication of Chapter where cash basis used
(1)This Chapter applies if—
(a)an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year but no such election has effect in relation to the trade for the following tax year, or
(b)no such election has effect in relation to a trade for a tax year but such an election has effect in relation to the trade for the following tax year.
(2)But this Chapter does not apply to income which is charged in accordance with section 832.”
37U.K.After section 239 insert—
“Spreading of adjustment income on leaving cash basisU.K.
239ASpreading on leaving cash basis
(1)This section applies if—
(a)an election under section 25A (cash basis for small businesses) has effect in relation to a trade for a tax year, and
(b)no such election has effect in relation to the trade for the following tax year.
(2)Any adjustment income is spread over 6 tax years as follows.
(3)In each of the 6 tax years beginning with that in which the whole amount of the adjustment income would otherwise be chargeable to tax, an amount equal to one-sixth of the amount of the adjustment income is treated as arising and is charged to tax.
(4)This section is subject to any election under section 239B (election to accelerate charge).
239BElection to accelerate charge under section 239A
(1)A person who under section 239A is liable to tax for a tax year on an amount of adjustment income may elect for an additional amount to be treated as arising in the tax year.
(2)The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year.
(3)The election must specify the amount to be treated as income arising in the tax year (which may be any amount of the adjustment income not previously charged to tax).
(4)If an election is made, section 239A applies in relation to any subsequent tax year as if the amount of adjustment income (as reduced by any previous application of this section) were reduced by the amount given by the following formula—
where—
A is the additional amount treated as arising in the tax year for which the election is made, and
T is the number of tax years remaining after that tax year in the period of 6 tax years referred to in section 239A.”