FRS 102 ― current and deferred tax

FRS 102, s 29 sets out the recognition, measurement, presentation and disclosure requirements for both current and deferred tax. The section also includes accounting requirements for VAT and similar taxes which are not based on income, although the focus of this guidance note is direct taxes.

The treatment of current tax under FRS 102 is unchanged from the old UK generally accepted accounting practice (GAAP).

Deferred tax retains the ‘timing difference’ concept from FRS 19  under old UK GAAP, but its application is extended from profit before tax to ‘comprehensive income’, which includes profit before tax plus other gains and losses recognised outside the income statement. These may include revaluation gains on property treated under the revaluation model. FRS 102 requires deferred tax to be recognised on such gains even where there is not a binding contract to sell the property.

Another key difference is that deferred tax must also now be recognised on fair value adjustments arising out of a business combination (where the acquirer obtains control of another business). This is sometimes referred to as a ‘timing difference plus’ approach. See the FRS 102 ― specific deferred tax issues guidance note (subscription sensitive) for further information.

A company must recognise a current tax liability in its financial statements for tax payable on taxable profit (ie corporation tax) for the current and past periods. If the tax paid for those periods exceeds the amount payable, the excess amount paid is shown as a current tax asset, as the overpayment gives rise to a repayment from HMRC. Alternatively, a reallocation to another accounting period could be agreed between the company and HMRC.

If a company has a tax loss that