Changes to UK GAAP – tax implications

Forthcoming changes to UK Generally Accepted Accounting Practice (GAAP) may have an effect on companies’ tax liabilities.

Existing standards for UK GAAP are being replaced by new financial reporting standards, FRSs 100, 101, 102 and 103, for accounting periods beginning on or after 1 January 2015. Companies should be aware that the transition to the new basis may have various tax (and deferred tax) implications, including:
  • the carrying value of a number of assets and liabilities may change, or new assets and liabilities may be recognised, in which case there will be a corresponding adjustment to the opening P&L reserves. For tax purposes adjustments must be made to ensure that taxable receipts and allowable deductions are taken into account once, and once only;
  • specific provisions apply to intangibles. If there is a difference between the opening value on the new basis and the closing balance on the old basis then there will normally be a taxable debit or credit equal to that difference multiplied by the fraction A/B, where:
    – A is the tax written down value at the end of the earlier period;
    – B is the accounting value at the end of that period.
  • under FRS101 goodwill is not amortised (but impairment is recognised). This means that it will usually be beneficial for affected companies to make use of the election for nominated assets to be written off at 4% a year for tax purposes, rather than following the accounts;
  • if loan relationships or derivative contracts are restated to new opening figures, the adjustment from the previous closing value is. broadly, brought into account as a credit or debit as appropriate. Most such adjustments will be spread over ten years. However, there are certain cases in which the adjustment will be brought into account immediately, and others where there will be no adjustment at all.

A number of amendments to regulations have been made to facilitate the change. These will enable companies to:
  • elect into rather than out of the ‘Disregard Regulations’ (dealing with foreign exchange movements on matched assets and liabilities);
  • exclude certain transitional adjustments in respect of ‘distressed debt’ preserve the foreign exchange treatment for ‘permanent as equity’ debt.

Moore Stephens will be pleased to advise on the tax treatment of transitional adjustments and the tax effect of changes to the way in which transactions appear in the accounts. In particular, there may be opportunities to minimise tax charges by making appropriate elections where available.

For further informtion, please contact your usual business tax adviser.