FD Intelligence

Technical note: FRS 102 tax implications

FRS 102, the new UK GAAP, is coming and there are a number of tax implications finance directors need to be aware of.

In September, we covered the business implications of the upcoming changes to accounting standards. This time, we take a look at the tax issues involved in moving over to FRS 102 and why they require some serious consideration.

Summary of the new financial reporting regime

From 1 January 2015, all current UK accounting standards will be withdrawn (except for companies subject to the small companies regime) and a new financial reporting regime will be introduced in their place. Existing accounting standards will be replaced with a single standard called FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland

An option of International Financial Reporting Standards (IFRS) with disclosure exemptions, FRS 101: Reduced Disclosure Framework, is also available for most subsidiary and parent company individual accounts.

Transition to this new framework will be a major change for UK businesses and there are significant tax consequences to consider as well.

Calculating corporation tax

As a consequence of the new accounting standards, the basis for calculating the company's corporation tax will change. Perhaps the biggest change will be the increased volatility in corporation tax payable, as more financial assets and liabilities will be required to be recognised on the balance sheet, with movements in fair value being posted to the profit and loss account. It may be possible to remove some of this volatility where instruments are taken out as hedges, although this will bring a heavy compliance burden with it, so some companies may opt to suffer the volatility instead.

Balance sheet value and tax

Another aspect to consider is how the change in balance sheet value at the transition date will be dealt with for tax purposes. Regulations exist to ensure that this change in value is brought within the corporation tax net. The change in value may be included for tax purposes in the first period after transition in full, spread over 10 years or not at all, depending on the circumstances.

For some companies, it may be beneficial to make various elections. The deadline for elections is, in most cases, the last day of the accounting period before the new accounting rules take effect. The making of elections can also have a significant effect on amounts brought into charge under the transitional adjustments, so it is important to consider this as well when deciding whether or not to make an election.

Assess your arrangements 

Our short survey will help you identify your transition date and whether you may have a low, medium or high number of issues on transition. Just answer our series of multiple choice questions to find out just how prepared your business is.

Your FRS 102 assessment should take no more than 10 minutes – start here.