United Kingdom
Tax impact
The introduction of FRSME will have an impact on various aspects of the tax position of companies.
The starting point for calculating the corporation tax charge is the profit before tax in the financial statements. Therefore if as a result of a change in accounting standards the profit before tax changes then this will impact on the tax charge and hence cash tax payments.
FRSME uses the concept of temporary differences when calculating deferred tax rather than timing differences. As a result more items in the financial statements will give rise to deferred tax with a consequential impact on earnings and profits of the company. Under FRSME the deferred tax position of many companies will be more complex than under current UK GAAP rules.
In both cases companies may need to factor in the changes arising from a potential introduction of FRSME to their budget and cashflow forecasts.
The transition from UK GAAP to FRSME may give rise to net transitional adjustments which will be debited or credited to reserves. These debits and credits may potentially fall into tax immediately. It is proposed that FRSME will allow early adoption and therefore in some case this may be advantageous from a tax perspective to adopt early if it allows the transitional adjustments to be recognised when a credit can be sheltered with losses or a debit used to shelter profits.
The key message is to be aware of how a transition from UK GAAP to FRSME would affect a company’s tax position so that appropriate preparation and planning can be undertaken.
To discuss the potential changes contact Neil Brackstone, Senior Tax Manager, on 0118 925 4442.
Contacts
Michael Goldstein
Partner
Telephone:
020 7486 5888
Email Michael
Paul Merris
Director
Telephone:
0121 352 6200
Email Paul