Transition from IFRS to FRS 102

By Tolley in association with Malcolm Greenbaum

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

Transition from IFRS to FRS 102
Introduction
Rate of tax
Comparison of deferred tax accounting
Transitional exemptions
Recognition of deferred tax adjustments on transition
Adjustments to the comparative year

Introduction

Transitioning from IFRS to FRS 102 will be rare, although two examples of this scenario are provided below:

•it is possible that a company currently listed on an EU regulated stock exchange or the UK's Alternative Investment Market (AIM) might delist and may not need to produce IFRS financial statements in future
•a subsidiary currently producing IFRS financial statements as directed by its parent may be sold by the parent company to shareholders or another group that is not using IFRS whereby it may need to transition to FRS 102

Rate of tax

The rate of tax used for any deferred tax calculations on transition to FRS 102 is the rate expected to apply when the timing difference reverses, based on the rates enacted or substantively enacted at the end of the relevant year. See the FRS 102 – current and deferred tax guidance note for a definition of when a rate is substantively enacted.

Comparison of deferred tax accounting

IFRS (IAS 12) calculates deferred taxation based on temporary differences between the book value of an asset or liability and its tax base. The tax base of an asset is the amount that will be deductible against future taxable profits. The tax base of a liability is the book value minus the amount deductible against future taxable profits.

IAS 12 mandates that the tax base be calculated by taking into account the manner of recovery of the asset or liability. Most assets have a ‘dual tax base’ ie the asset is held for ‘use’ during its useful economic life and then a ‘sale’ basis at the point of sale, loss or destruction of the asset. This can cause particular problems for