FRS 102 ― current and deferred tax

Produced by Tolley in association with Malcolm Greenbaum

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

  • FRS 102 ― current and deferred tax
  • Introduction
  • Current tax
  • Deferred tax
  • Timing and permanent differences
  • Permanent differences
  • Unrelieved tax losses and other deferred tax assets
  • Measurement of deferred tax assets and liabilities
  • Disclosures

FRS 102 ― current and deferred tax

Introduction

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 recognition of current tax is generally very straightforward being based on the taxable profit for the period.

Deferred tax retains the ‘timing difference’ concept from FRS 15 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.

Deferred tax must also 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 for further information.

Current tax

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 can be carried back to recover tax paid in an earlier period, a current tax asset is recognised for the benefit of that tax loss (ie the repayment due from HMRC).

The tax rates to be used in measuring a current tax liability or asset the company

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