UK: Tax Implications Of A Change From Existing UK GAAP To FRS102

Last Updated: 18 June 2013
Article by Smith & Williamson


FRS102 is the new accounting standard that will replace UK GAAP and become the accounting standard applicable in the UK and Ireland. It represents a significant change in financial reporting in the UK. FRS102 will come into effect for financial reporting periods beginning on or after 1 January 2015 for those not already using IFRS or FRSSE accounting. Early adoption is permitted for periods ending on or after 31 December 2012.

The change from existing UKGAAP to FRS102 will have tax and company law implications that will need careful consideration. There are a number of tax implications arising from accounting policy decisions and this briefing note highlights a selection of some areas for consideration.

Significant differences between current UK GAAP and FRS102 potentially impacting tax

Some of the changes that will impact on tax planning are listed below:

Accounting policy disclosures

Businesses will be required to disclose the judgements that management have made in applying accounting policies and to provide information about the key assumptions concerning the future and other sources of estimation uncertainty that may materially affect the carrying value of assets and liabilities in the next financial year.

Restatements in respect of errors

Restatement will be required where a prior period error is material as opposed to the current requirement that the error be fundamental. This is likely to result in more prior period adjustments being made. There may therefore be a greater incidence of the tax rules operating where there is an adjustment on a change of basis.

Financial Instruments

There are significant differences between the accounting treatment of financial instruments under IFRS and under UKGAAP, which are imported into FRS102. Under FRS102 financial instruments will be classified as 'basic' or 'other'.

Basic financial instruments will be initially measured at cost and subsequently amortised, except for shares whose value can be reliably measured (which will be fair valued with gains and losses going through the P&L). Where cost is used, the accounting value will be cost less impairment.

With the exception of equity instruments that are not publically traded and for which fair value cannot be measured reliably, all other financial instruments must be measured at fair value with gains and losses recorded in profit or loss. This will include derivative instruments which are often not accounted for under existing GAAP.

Hedge accounting is permitted so long as strict criteria are met.

Intercompany loans that are not repayable on demand must be initially recognised at fair value (being the present value of the future payments discounted at a market rate of interest for a similar debt instrument). Where the terms of the loan are at below market rate, this will result in a lower carrying amount and recognition of a higher interest cost than under current GAAP.

The tax regime generally follows the accounting regime which can therefore be significantly different depending on the standards adopted. However there are some specific rules for tax purposes that will need to be considered. In addition there is currently the opportunity to make disregard elections for certain foreign exchange gains and losses, and derivative contracts. The fact that there will be a greater number of revaluations of financial instruments under FRS102 could mean that there will be a knock on impact to either cash tax (where the tax treatment matches the accounting treatment), or deferred tax (where the tax treatment is different to the accounting treatment). A consultation was issued on 6 June 2013 on potential reform of the loan relationship and derivative tax regime, with changes scheduled for Finance Bill 2014 and 2015. Determining the tax impact of changing over to FRS102 in respect of financial instruments will therefore require consideration of a number of points.

Intangible assets and goodwill

In contrast with existing UK GAAP, where indefinite lives are permitted and there is a rebuttable presumption of useful economic life of 20 years, under FRS102 all intangible assets are assumed to have a finite life and, if it is not possible to estimate the useful life, there is a rebuttable presumption that the life is 5 years.

Depending on accounting treatment and classification of intangible assets as subject to the intangible asset regime or CGT, there may be a need to revisit whether elections are appropriate under the intangible asset regime.

Employee benefits

Unlike existing GAAP which addresses only post-retirement benefits, FRS 102 covers the accounting requirements for all forms of employment benefits including those that are regarded as short-term.

Short-term benefits include not only wages and salaries but also compensated leave such as paid holidays. As a consequence entities that may not have previously made specific provision for holiday pay will need to consider doing so and if their holiday year is more than nine months after their year end the provision will not be allowable for tax purposes until the accounting year in which it is paid. Accounting for pensions may also be different.

Foreign currency translation

Where there are matching forward contracts for a transaction, existing GAAP allows the contracted rate to be used to translate the matched transaction. This option does not exist under FRS 102. Instead, the transaction is translated at the spot rate and the forward contract is recognised as a derivative financial instrument in accordance with Section 12. Hedge accounting might be possible if the strict criteria set out in that section are met. Whether there are any tax impacts arising from this change will depend on the loan relationship and derivative contract legislation applicable and any elections made under the disregard regulations.

Distributable reserves

Deferred tax under FRS102 is different to existing UK GAAP (deferred tax must be provided on a greater range of revalued assets and no discounting of deferred tax assets or liabilities is permitted). As a result of this and possibly other changes mentioned above changes, there may well be an impact on the level of distributable reserves. This could have implications for distribution policies and balance sheet presentation for borrowing and business transaction purposes.


The definition of materiality changes from UK GAAP to FRS102. However HMRC still consider materiality an accounting concept and not a tax concept therefore even with the change in definition it will still exist for accounts purposes and we will therefore need to be aware of it when reviewing adjustments required to calculated taxable profits.

Required action points for those affected

All businesses should as a minimum be considering the impending adoption of FRS102. In addition to accounting presentation, consideration should also be given to the effect on the tax position. This briefing note only covers some of the tax impacts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions