FRS 102 ― specific deferred tax issues

By Tolley in association with Malcolm Greenbaum

(Updated for Budget 2020)

The following Corporation Tax guidance note by Tolley in association with Malcolm Greenbaum provides comprehensive and up to date tax information covering:

FRS 102 ― specific deferred tax issues
Example 1 ― voluntary revaluation of property, plant and equipment
Example 2 ― measurement of investment property after initial recognition
Example 3 ― business combinations
Example 4 ― finance lessors

These examples support the commentary in the FRS 102 ― specific deferred tax issues guidance note.

Example 1 ― voluntary revaluation of property, plant and equipment

A company purchased a freehold property for use in its business during the year for £3 million. It has decided to adopt a policy of annual revaluation.

At the end of the year, the property has been depreciated to a book value of £2.9 million and at this date it is revalued to £3.2 million. Assume the retail prices index has increased by 1.5% since the property was purchased.

The corporation tax rate is considered to be 19% in this calculation.

The company must recognise a deferred tax liability, assuming a sale of the property at the reporting date. The unrealised capital gain is:

Current market value	£3.200m
Cost	(£3.000m)
Indexaton	(1.5% x £3m)
	(£0.045m)
	£0.155m

The corporation tax payable would be 19% on £0.155m = £29,450.

Indexation allowance is frozen from 1 January 2018, so the indexation allowance on the freehold property will only be available up to the end of December 2017 and assets acquired from 1 January 2018 will not attract indexation on disposal.

Deferred tax