In Hart St Maltings Ltd v HMRC [2023] TC08961, the First Tier Tribunal (FTT) found that a property development company reporting under FRS 105 could not use the cash basis of accounting for Corporation Tax purposes.

  • Hart St Maltings Ltd (Hart), a Trading company, acquired a single building which it redeveloped into two properties, ‘House 3’ and ‘House 4’.
    • House 4 was sold in the year ended 28 February 2018.
  • Hart’s Corporation Tax return and associated 28 February 2018 accounts, prepared under FRS 105, recorded the sale of House 4 and deducted the costs of developing both Houses 3 and 4 to that date.
    • Turnover was stated at £975,700, with the cost of sales totalling £1,096,403.
  • In February 2022, HMRC raised a Discovery assessment charging Corporation Tax of £44,600.
  • Hart Appealed to the First Tier Tribunal (FTT). HMRC applied to have Hart’s appeal struck out.

The FTT found that:

  • Section 46 of the Corporation Tax Act 2009 requires trading profits to be calculated in accordance with Generally Accepted Accounting Practice (GAAP).
  • FRS 105 requires Micro entities to use the accruals basis.
  • Under the accruals basis, only the costs relating to House 4 could be deducted in the year ended 28 February 2018. Hart had not done this.
  • There was no principled basis to support the assertion that Hart was entitled to use the Cash basis of accounting.

Hart’s appeal had no realistic prospect of success. It was struck out.

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Hart St Maltings Ltd v HMRC [2023] TC08961

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