Similar rules exist in other parts of the tax legislation. Instead such companies will need to transition to one of the New UK GAAP alternatives. We use some essential cookies to make this website work. The primary changes from the original paper are: There currently exists a suite of accounting standards in the UK. The above treatment doesnt apply where it can be demonstrated that the sponsoring entity wont obtain future economic benefit from the amounts transferred or it doesnt have control of the right or other access to the future economic benefit. Its expected that for many entities currently applying FRSSE they will transition to Section 1A of FRS 102. Model accounts available from Bloomsbury Core Accounting and Tax Service Model accounts available online Does the above sound correct or should the fair value be recognised over a default period, such as, 10 years and reversed at a later date if the options become void? In certain circumstances a company holding investment property as a lessee under an operating lease may, under section 16 for FRS 102, account for it as an investment property. Consolidated accounts/seperate financial statements, investments in associates and joint ventures, Accounting policies, estimates and errors, Check benefits and financial support you can get, Find out about the Energy Bills Support Scheme, Accounting standards: the UK tax implications of new UK GAAP, Summary of the changes to the accounting standards, PART A Comparison between Old UK GAAP and FRS 102, PART B - Transitional adjustments (Old UK GAAP to FRS 102), nationalarchives.gov.uk/doc/open-government-licence/version/3, Corporation Tax: Disregard Regulations for derivative contracts, Statement of total recognised gains and losses, Statement of comprehensive income (sometimes referred to a statement of other comprehensive income), Reconciliation of movements in shareholders funds, Part A of this paper provides a comparison of the accounting and tax differences that arise between Old UK, Part B of this paper provides a summary of the key accounting and tax considerations that arise on transition from Old UK, additional commentary in relation to non-interest bearing loans, updated commentary on the application of the Disregard Regulations and Change of Accounting Practice Regulations, reflecting the changes made to these statutory instruments in December 2014, accounting commentary updated to reflect the amendments to, where applicable it has been updated for any commentary specific to section 1A of, proposed changes to the tax rules, for example changes to the loan relationship and derivative contract rules and changes to the intangibles legislation included in Finance (No.2) Act 2015, Micro-entities: companies that meet the eligibility criteria may prepare and file abridged accounts, with effect for periods commencing on or after 1 January 2016 these requirements are contained in, assets and liabilities at the accounting transition date will be identified, recognised and measured in line with the requirements of the new standards, thereafter profits and losses will be recognised in accordance with the new standards - these may differ from those profits and losses that would have been reported had Old UK, UK Generally accepted accountancy practice generally accepted accountancy practice in relation to accounts of UK companies (other than, a single statement of comprehensive income, in which case the statement presents all items of income and expense recognised in the period, 2 statements; an income statement and a separate statement of comprehensive income, application of Section 11 and Section 12 of, application of the recognition and measurement criteria of, all derivatives (including interest rate swaps, a forward commitment to purchase a commodity that is capable of being cash-settled, and options and forward contracts), loans that arent plain vanilla debt where, for example, the amount repayable can vary or where non-standard interest rates are used, investments in convertible debt where the return to the holder can vary with the price of the issuers equity shares rather than just with market interest rates, assets and liabilities held for trading purposes or speculatively, assets and liabilities designated at the outset by the company as at fair value through profit and loss, the tax treatment of derivatives is explained at, as noted above, financial instruments are required to be fair valued under Section 12 for all but basic instruments - loans previously recognised on an amortised cost basis may therefore be measured at fair value in accordance with Section 12, as noted above, Sections 11 and 12 dont permit the bifurcation of embedded derivatives (although the issuer of compound instruments will still separate out the equity component under Section 22) - for example the holder of a hybrid financial instrument is required under, Section 17 requires that residual values are based on current prices rather than historic prices, because of the difference in the definition of an intangible asset an acquisition under, there is a change in the measurement of the consideration given where that consideration is contingent, the look back period in which provisional fair values can be amended is different (, a change in step acquisitions in some circumstances, a grant that doesnt impose specified future performance-related conditions on the recipient is recognised in income when the grant proceeds are received or receivable, a grant that imposes specified future performance-related conditions on the recipient is recognised in income only when the performance-related conditions are met, grants received before the revenue recognition criteria are satisfied are recognised as a liability, it removes the multi employer exemption on defined benefit schemes such that the scheme position is reported in the solus accounts of the entity contractually or legally responsible for the plan, the calculation of the net interest on defined benefit schemes is different. Exchange movements arising on retranslating the companys net investment in the foreign operation recognised in other comprehensive income. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view. (3) Interest rate contracts in a hedging relationship (Reg 9 contracts). Tax would typically follow the accounting in this case. Where the useful life of the intangible asset can be reliably estimated this life is used as the UEL. News stories, speeches, letters and notices, Reports, analysis and official statistics, Data, Freedom of Information releases and corporate reports. Stay up-to-date with the latest business and accountancy news: Sign up for daily news alerts, Published: 01 Dec 2015 Related party transactions (Sch 3A(55))-Note disclosures less than what is required currently. In those cases where depreciation under Section 17 of FRS 102 differs from that under FRS 15 (for example, because of revaluation of residual values) tax will follow the amount as per Section 17 of FRS 102. Shares issued during the period. The COAP Regulations (reg 3C(2)(ca) and reg 3C(2)(da)) provide that such transitional adjustments arent to be brought into account to the extent that those previous exchange gains or losses had been disregarded for tax. Exceptional item disclosures (Sch 3A)(53). a holding company of a small group even where the group meets the thresholds where any of the entities in the group come within points 1, 2 and 3 above (this only effects the holding company and not the other companies within the group (other than a company that comes within the remit of points 1-3 above)). In particular, it provides an overview of the key accounting changes and the key tax considerations that arise for those companies that transition from Old UK GAAP [footnote 1] to FRS 102. Section 12 does however apply, for example, to all derivative financial instruments. The legislation ensures that most items taken to reserves are brought into account. Under both Section 12 of FRS 102 and the IAS 39 option, hedge accounting is only permitted where certain criterion are met. This quick guide is split out in the following way: , FRS 102 Summary Section 2 Concepts and Pervasive Principles, FRS 102 Summary Section 3 Financial Statement Presentation, FRS 102 Summary Section 4 Statement of Financial Position, loans to and from related parties at non-market rates and not repayable on demand; and. The above commentary focuses on companies that dont currently apply FRS 26. For companies which have adopted FRS 23 (and FRS 26) the transition to FRS 102 and Section 30 isnt expected to result in any significant changes. Under the accruals model grants relating to revenue are recognised in income on a systematic basis over the periods in which the entity recognises the relevant grant costs. The corresponding creditor is accounted for as a finance lease (see Section 20 of FRS 102). For companies where costs on expenditure such as software have been previously written off to profit and loss account and claimed as a deduction in a Case I computation in respect of expenditure on a tangible asset, the following tax consequences will apply in respect of the change of accounting policy. 1) Basic Loans Whether prepared using Old UK GAAP or New UK GAAP the relevance of consolidated accounts and equity accounting is very limited in UK tax law, and its not thought that FRS 102 represents any significant change that would require revisiting those few areas of UK tax law that do have regard to consolidated accounts (such as aspects of the finance leasing arrangements (Chapter 2 Part 21 CTA 2010), intangible fixed assets rules (Part 8 CTA 2009) and the World Wide Debt Cap rules (Part 7 of TIOPA 2010)). However, relief isnt available where the costs are capitalised in the carrying value of an intangible fixed asset which falls within Part 8 CTA 2009. Entity has claimed exemption from reporting comparative information on certain items of share capital in line with FRS 102 1.12(a) [true/false] . Defined, for purposes of this paper only, on page 3, See FRS102 11.7 and 12.3 for comprehensive list, Note that where the convertible debt is a compound financial instrument the accounting in the issuer will also be determined by reference to Section 22 of FRS 102, The appendix to UITF Abstract 47 provides some further explanation of these points, IAS 39 has a similar requirement for companies that have chosen the IAS 39 option, If payment terms are deferred beyond normal credit terms, the cost is determined by reference to the present value of the future payments. It remains the responsibility of the entity or individual to ensure that it prepares accounts in accordance with relevant GAAP and submits a self assessment in line with UK tax law. In overview, FRS 26 and IAS 39 require companies to separate out (bifurcate) embedded derivatives from host contracts. To subscribe to this content, simply call 0800 231 5199. In 2004 and 2005, the Government considered various representations about the impact of the transitional rules when a company moves from Old UK GAAP to either IAS or FRS 26. In particular, there are 2 sets of provisions which may alter this position. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view. Access to our premium resources is for specific groups of members, students and users. In relation to its first financial year; orA company qualifies for the small companys regime if it fulfils at least two of the three qualifying conditions listed below: Note 1: Exception even where the above thresholds are met: S. 0A(4) and 280B(5) of CA 2014 excludes the following companies from applying the SCR and hence Section 1A: Companies will continue to apply all the measurement and recognition criteria under FRS 102 Sections 2 to 35 of FRS 102. Further information is available in the Corporate Finance Manual (CFM) as follows: This paper doesnt address in detail the position of hybrid instruments and the embedded derivatives. So the rules will also apply to companies that have, for example, adopted FRS 26 with the result that derivative contracts have been fair valued. interest free/favourable interest and not repayable on demand) at the amortised cost at the opening of the current year (and to determine the rate of interest at that time) no need to restate comparative year etc. the accounting treatment required for a S.1A set of financial statements are specified in Sections 9 to 35 of FRS 102). For loan relationships section 308 ensures that this amount is brought into account for tax purposes where its taken to the statement on total recognised gains and losses (in Old UK GAAP) or statement of changes in equity (in FRS 101, FRS 102 or IAS). For Corporation Tax purposes, adjustments are treated as receipts or deductions in computing the trade profits. Further detail on specific transactions involving financial instruments where the requirements of FRS 102 differ from the requirements of Old UK GAAP are set out below. Further guidance on abridged accounts can be found in the helpsheet Abridged accounts for small companies. There is no specific standard for revenue recognition in Old UK GAAP. UITF 28 requires that operating lease incentives in the lessee are spread over the period ending on the date from which its expected that the prevailing market rent will be payable (if this period is shorter than the lease term, otherwise over the lease term). FRS 102 is consistent with Old UK GAAP in this regard. Amounts on such contracts are brought into account under regulation 10. Secondly, if the loan did not arise as a result of a transaction between persons acting at arms length it may be necessary to apply the transfer pricing rules in Part 4 of TIOPA 2010. This publication is available at https://www.gov.uk/government/publications/accounting-standards-the-uk-tax-implications-of-new-uk-gaap/frs-102-overview-paper-new. Adobe Connect Users Mailing Address Database, How to avoid leaving nearly 70k on the table, Getting started with client engagement letters, Working environment in Account / Audit Practise. Given that many UK companies will be adopting FRS 102 for the first time in 2015, the paper has not been updated for these changes. Ability to prepare an abridged profit and loss account (start with the gross profit line) and balance sheet (no requirement to include) as the actual full set of financial statements subject to the approval of all members (this is discussed further in the link to the quick guide below). The nominal chart has the following key identifiers: Code ranges that group similar items together Descriptions that enable the user to understand the posting It may be that when these factors are taken into account this will result in a different assessment of the companys functional currency. Firstly FRS 102 doesnt permit an indefinite life. In certain situations it may be appropriate to adopt a no gain/no loss policy, so that the value of the equity issued is treated as being equal to the carrying value of the debt given up. Debt may be restructured or have its terms modified such that, in accordance with FRS 5 and Old UK GAAP (where FRS 26 isnt adopted), no gain or loss would be recognised in the accounts. They wont be required to present any other primary statements but are encouraged to present a statement of comprehensive income (sometimes referred to as the statement of total recognised gains and losses) and a statement showing changes in equity. Auditors report as previously except reference to cash flow statement to be deleted and, Profit and loss account/Income statement laid out in accordance with Schedule 3A (similar to existing Sch 3 CA 2014 however the words ordinary activities is removed and word charges changed to expenses), Other comprehensive income Statement of Comprehensive income, Balance sheet laid out in accordance with Schedule 3A (similar to existing Sch 3 CA 2014). If you want to start the ACA qualification there are several routes you can take. In addition, in December 2014 the Disregard Regulations were extended so to exclude exchange movements on certain instruments that were previously accounted for as permanent as equity debt under SSAP20. This would include amounts recognised in the STRGL under Old UK GAAP and amounts recognised as items of OCI under FRS102 or IAS. The requirements of FRS 102 (Section 9) are comparable. section 1A 'Small Entities', which was first introduced into the September 2015 edition of FRS 102. S.1A are the minimum disclosures. HMRC has published additional guidance to help companies with hedging instruments making the transition to new accounting standards. How increasing labor costs lead to AP Automation? ` N _rels/.rels ( J1miz0$IHFmAT\XkIf'q`aY`8Zx=.i-Z?@MS1J B'xRA_1$z-&rjWu}7 lK0S~;~u 3#pZd-=JmV),I]HYsk?BBp+QJF8 PK ! This is available at: Corporation Tax: Disregard Regulations for derivative contracts. S;E Movement on profit and loss reserves including transfers in and out to be disclosed if not shown on face of profit and loss account or in SOCE. There are rules which grandfather the previous tax treatment for most convertible debt and asset-linked instruments issued before the companys first period of account beginning on or after 1 January 2005 (see CFM 37680 to 37710 for further details). Examples include: Definition of related parties more narrowly defined hence less related party disclosures. As noted above, under Old UK GAAP, FRS 3 requires that the cumulative effects of prior period adjustments are presented at the foot of the STRGL. The accounting policies adopted (including changes therein and correction of prior period errors); An explanation of any use of the true and fair override; A fixed assets note, including a reconciliation and revaluation table and details of any impairments to such assets; Disclosure of amounts due or payable after more than 5 years and debts covered by valuable security; Disclosure of financial commitments, guarantees or contingencies not included in the balance sheet; The nature and business purpose of arrangements not included in the balance sheet; The amount and nature of individual income or expense items that are exceptional in size or incidence; The average number of employees during the financial year; The name and registered office of the undertaking drawing up the consolidated financial statements of the smallest body of undertakings of which the undertaking forms part (only applicable where the small entity is a subsidiary and is included in consolidated accounts); Details of certain related party transactions; The amount of advances and credits granted to directors and guarantees of any kind entered into by the small entity on behalf of its directors; The nature and effect of post balance sheet events. Disclose the amount of interest income recognised on loans to group companies in the P&L, Disclose the amount of interest expense recognised on loans from group companies in the, Disclosures for credit institutions & specific disclosures (Section 310 -313 CA 2014), Disclosure of average number of employees in year (Section 317(1)(a) CA 2014). In particular the following are examples of instruments which will now be held at fair value in accordance with Section 12 of FRS 102: The requirements of Section 12 of FRS 102 represent a significant change from Old UK GAAP (both where FRS 26 has and has not been adopted). There are strict deadlines for making these elections. (2) Embedded derivatives where the host instrument isnt a loan relationship. Who can apply Section 1A? The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. Note that where the forward contract is taken out as a hedge of qualifying expenditure, the amount of capital allowances is based on the amount of actual qualifying expenditure incurred (for example, translated at the spot rate at the date of that the expenditure is incurred) - see CA11750. This part of the paper provides a comparison of the ongoing accounting and tax differences that arise between Old UK GAAP and FRS 102. The position is different under FRS 102. In respect of accounting for pension schemes Section 28 of FRS 102 differs to FRS 17 in particular: These changes, and others, arent expected to have an impact for tax. Well send you a link to a feedback form. Monetary amounts in these financial statements are rounded to the nearest . listed shares). Section 1A only provides disclosure exemptions. Other transactions entered into in which director has a material interest (Section 309 CA 2014). Assuming the property is held, for tax purposes, as an investment, the income arising on the property is bought into tax as its recognised in the accounts (for example rental income would be bought into tax as recognised in profit or loss). This also applies where a company is applying FRS 102. Particulars of retirement commitment benefits included in the balance sheet and significant assumptions in the valuations (e.g. For further details visit icaew.com/tas.