Corporation Tax

FRS 102 ― specific deferred tax issues

Produced by Tolley in association with Malcolm Greenbaum
  • 09 Nov 2021 08:31

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 ― specific deferred tax issues
  • Voluntary revaluations of property, plant and equipment
  • Measurement of investment property after initial recognition
  • Business combinations
  • Initial recognition
  • Measurement after initial recognition
  • Income or expenses of subsidiaries, branches, joint ventures and associates
  • Finance lessors
  • Holiday pay accruals
  • Gains rolled over
  • More...

FRS 102 ― specific deferred tax issues

Voluntary revaluations of property, plant and equipment

Under FRS 102, gains and losses on revaluation are recognised in the statement of other comprehensive income, which is outside of the income statement.

Deferred tax must be recognised assuming a sale of the property at the reporting date, using the tax rates and allowances that apply to the sale of the asset.

The initial deferred tax asset or liability and any change in the balance in subsequent accounting periods is recognised in ‘other comprehensive income’ to match the valuation adjustment giving rise to it.

See Example 1.

Measurement of investment property after initial recognition

FRS 102 permits two accounting treatments for an investment property as follows:

  1. 1)

    if fair value can be measured reliably without undue cost or effort, the investment property should not be depreciated. Instead, it should be revalued to fair value at each reporting date, with the change in fair value being recognised as income or an expense in the income statement

  2. 2)

    if fair value cannot be measured reliably without undue cost or effort, the investment property should be treated like any other item of property, plant and equipment (see above)

FRS 102, s 16.7

Deferred tax must be recognised if fair value adjustments are used, ie if point 1 above applies. It must be measured using the tax rates and allowances that apply assuming a sale of the asset. However, there is an exception for investment property that:

  1. has a limited useful life (eg the investor has a leasehold interest), and

  2. is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the property over time

FRS 102 provides no clarity on how deferred tax should be calculated in the exceptional situation described above.

IFRS (IAS 12) would require a tripartite calculation in this situation, splitting the total carrying value of the building into land, notional depreciable amount (ie what the depreciation would be if

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