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Revenue and Customs: Accountancy Rules

Volume 684: debated on Tuesday 25 July 2006

asked Her Majesty’s Government:

Further to the Written Answer by the Lord McKenzie of Luton on 13 June (WA 19-20) on the implementation of the urgent issues task force’s 40 rules, whether it is the decision of the seller alone to charge an appropriate rate for a completed contractural activity and H M Revenue and Customs will not attempt to impute an income if they believe this to be less than market value. [HL7059]

The terms of a commercial contract are a matter for the parties concerned, not HM Revenue and Customs (HMRC). HMRC would only seek to recalculate the trading profits included by an individual taxpayer in his income tax self-assessment return—or by a company in its corporation tax self-assessment return—if it considered that: (i) the trading profits had been derived from accounts not prepared in accordance with generally accepted accounting practice; (ii) any adjustments in computing taxable profits required or authorised by tax law had been incorrectly made; or (iii) if the contracts concerned were with a connected party, they had not been priced on an arm’s-length basis.