For accounting periods commencing on or after 1 January 2015, current UK GAAP has been replaced by a single standard. The transition requires all UK companies’ financial information to be prepared in accordance with FRS 102. The only exceptions will be those applying International Financial Reporting Standards (IFRS) or Financial Reporting Standard for Smaller Entities (FRSSE).
This standard deals with all forms of tax, both current and deferred tax, withholding tax and VAT. Current tax For current tax, we are required to recognise a liability (asset) for current tax payable (or receivable) in respect of the current and previous periods.
If there are losses that can be carried back to recover tax in a previous period, an asset can be recognised in respect of the tax expected to be recovered.
For current tax, we are required to recognise a liability (asset) for current tax payable (or receivable) in respect of the current and previous periods.
In certain circumstances recognition of deferred tax will be significantly different under FRS 102.
Deferred tax will now be recognised on all timing differences. This will include revaluations or other fair value adjustments to fixed assets, including investment properties. Under FRS 19 deferred tax was only recognised on revalued property if it was intended to be sold. For property investment groups, this may result in recognition of a substantial deferred tax liability. This may materially affect the reported net assets of the entity and potentially impact upon bank covenants.
Deferred tax will also be recognised on fair value adjustments to assets acquired as a result of a business combination (excluding goodwill). This will have an impact on the goodwill recognised on business combinations. Fortunately, entities will have a choice as to whether they apply these provisions to business combinations that occurred before adoption of FRS 102.
The criteria for recognising a deferred tax asset for unrelieved tax losses remains basically the same. They can only be recognised where is it probable that there will be future profits to utilise those losses.
There is no change to the rates used to calculate current and deferred tax. Both are calculated at rates enacted or substantively enacted at the balance sheet date.
The standard specifically prohibits discounting of future tax liabilities.
The disclosures on tax will look virtually the same, a reconciliation between the profit on ordinary activities before tax multiplied by the effective tax rate and the actual tax charge recognised in the financial statements is still required. Current or deferred tax charges (or credits) will be recognised in the same component of total income or equity as the transaction that gave rise to the charge.
There is no change to the accounting treatment to withholding tax: