Clause 101 - References to accounting practice and periods of account
Finance Bill
5:45 pm
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
There has probably been some misunderstanding. Clause 101 standardises definitions of accounting practice used in existing tax legislation. All accounting references are now to ''generally accepted accounting practice'', and one thing the clause does is to move into a general interpretation section a standard definition of GAAP that already appears in a number of places in tax law.
The part of the definition of GAAP that the Opposition seek to amend says that GAAP means GAAP as it applies to UK companies. However, that is not a new idea—at least 10 different parts of the tax code specify that it is accounting practice as it applies to UK companies that must be followed. The clause brings all those different definitions into one place with one wording.
There is one important place where the fact that it is UK GAAP that must be followed has been made explicit. This is in the general rule governing the computation of profits of a trade in section 42 of the Finance Act 1998, which required taxable profits to be computed using an accounting basis which gave a ''true and fair view''. That wording in section 42 is being replaced with the new definition of GAAP, but the requirement to provide a ''true and fair view'' is maintained because that is required by the definition of GAAP.
The opposition amendments should therefore be resisted on two grounds. First, references in the tax code to accounting practice have made it clear that it is UK accounting practice that is meant. Secondly, in applying the UK tax system, and to be fair to all businesses operating in the UK, there must be consistency. Why should there be a tax advantage or a disadvantage for a company because it follows whatever is a true and fair view in some other state or country? The amendments assume that there will always be a ''true and fair view'' or an equivalent concept in every other country. Of course, we do not insist that overseas companies draw up their accounts using UK GAAP. We require it to be followed only for the purposes of computing tax. It is likely that company law and accounting rules in other territories would show much the same result as if the UK GAAP had been used. On the two grounds that I have set out, I hope that the hon. Gentleman will withdraw the amendment.