HMRC has issued tax guidance for companies who are preparing their accounts under FRS 102 Financial Reporting Standard applicable in the UK & ROI, outlining key accounting changes and tax considerations when transitioning from old UK GAAP
The paper is an update of a previous paper first published in January 2014, then updated in October 2015. Further changes were required as the standard setter, the Financial Reporting Council, has been tweaking the standard since it was released.
The key changes covered in the revised HMRC guidance are:
- 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 FRS 102 issued in August 2014 and July 2015; and
- where applicable it has been updated for any commentary specific to section 1A of FRS 102.
HMRC has set out detailed guidance on transitional adjustments on loan relationships which can occur as a result of changes in accounting policy.
In cases where a company stays within the same accounting framework, or otherwise does not restate its opening figures, the accounts will normally show a prior period adjustment (PPA) either in reserves or in equity. However, in some cases there may be no PPA even though there is a change in accounting measurement for a particular instrument.
For example, no PPA will be recognised where there is a change to the overall accounting framework and the opening figures have been restated. This will often be the case where a company adopts FRS 101 Reduced Disclosure Framework or FRS 102 for the first time.
The paper does not included updated guidance on the following:
- amendments to FRS 102 – pension obligations;
- FRS 104 – interim financial reporting; and
- proposed changes to the tax rules.
There are also no specific papers pertaining for FRS 105, the accounting framework for micro entities which replaces FRSSE.
HMRC previously revised the guidance on FRS 102 director’s loans in a separate document. It stated that the prescribed accounting treatment depends on which accounting framework has been adopted by an entity when making loans to/from directors/employees where there is no explicit interest rate or if the rate is not charged at market rate.
The HMRC FRS 102 overview paper – tax implications is here