UK and International Tax news
Tax Implications Of New UK GAAP
Wednesday 29th January 2014
HMRC has recently issued guidance in relation to the main tax implications arising from new accounting rules which will appy to companies for periods commencing on or after 1 January 2015. From this date, UK companies will not be permitted to prepare their accounts in accordance with current UK GAAP. Instead entities which applied current UK GAAP will need to use one of the alternatives. It is expected that for many entities currently applying current UK GAAP they will transition to one of FRS 101 or FRS 102.
There currently exists a suite of UK accounting standards. Subject to certain restrictions detailed in the respective standards themselves, entities may choose or may be required to prepare their accounts under one of the following:
EU endorsed IFRS/IAS – those accounts prepared in accordance with International Accounting Standards within the meaning of s.395 of the CA2006.
New UK GAAP – FRS 100, FRS 101 and FRS 102.
Entities applying New UK GAAP will, within the framework of FRS 100, apply one of FRS 101 or FRS 102. FRS 101 is effectively the recognition and measurement requirements of IAS subject to some adjustments to ensure alignment with UK Companies Act and also reduced disclosure requirements. FRS 102 is a new suite of accounting requirements which are closely aligned to, but are not the same as, IFRS.
Current UK GAAP – substantively the FRS’s, SSAP’s, UITF’s and relevant accepted practice in existence and applied prior to the introduction of New UK GAAP.
FRSSE – the Financial Reporting Standard for Smaller Entities. Entities that meet the eligibility criteria may prepare and file abbreviated accounts.
Micro entities – Companies that meet the eligibility criteria may prepare and file abridged accounts.
HMRC has prepared two overview papers, in order to assist companies thinking of choosing or have already chosen to apply either FRS 101 or FRS 102. In particular, they provide an overview of the key accounting changes and the key tax considerations that arise for those companies that transition from current UK GAAP to the new standards.
The first paper, entitled ‘FRS 101 Overview Paper’, provides an overview of the key accounting changes and the key tax considerations that arise for those companies that transition from current UK GAAP to FRS 101.
The second paper, entitled ‘FRS 102 Overview Paper’, provides an overview of the key accounting changes and the key tax considerations that arise for those companies that transition from current UK GAAP to FRS 102.
The main section of each paper is split into two parts with Part A providing a comparison to the position under current UK GAAP and Part B providing a summary of the accounting and tax considerations that arise on transition.
The papers concentrate on the corporation tax position. They may also assist individuals (and other entities) that are within the charge to income tax as many of the accounting and tax issues will be similar. However, there are significant differences between the two tax regimes which are not reflected in these papers. In particular, there are specific rules for loan relationships, derivative contracts and intangible fixed assets which only apply for the purposes of corporation tax.
These papers reflect HMRC’s current thinking based on the law as it stood as the date of publication. It is intended that these papers will be updated as further information is available and as new accounting standards and tax law develop.Contact Us