Summary Full provision for deferred taxation now required Accelerated capital allowances Pension costs Unrealised group profits Interest costs capatilised Unrelieved tax losses Other short term timing differences Not for: ` Re-valued fixed assets Rollover relief availed of Remittance of overseas sub.
Recognise DT asset if it is more likely than not to be recovered Where assets continually re-valued to fair value: provide DT Permits discounting Use tax rates enacted or substantively enacted Separately disclose where very material Reconciliation of current tax charge Don't provide DT where FRS 7 adjustment made Applies to all financial statements FRSSE are exempt
Accounting periods ending on or after 23 January 2002 SSAP 15 gone Background and discussion IAS 12 full recognition of DT but uses "temporary differences" rather than "timing differences". Temporary is wider then timing - it includes re-valued fixed assets, and rollover relief No discounting in IAS Three methods of accounting for deferred tax: Flow through: no deferred tax provided for. Full provision: provide DT on all timing differences Partial provision: reflects the tax this is expected to be paid and excludes perm. differences. Anticipate fixed asset purchases and tax planning activities. Partial (SSAP 15) did not deal well with pensions and was inconsistently applied. FAS 109 and other international standards required full provision. All timing differences reverse - in time so why not provide for them. Partial relied on an assessment of what management were going to do. It should be based
on obligations rather then intentions which is consistent with FRS 12. UK were out of step internationally on this point. Move towards full provision in FRS 19. Flow through with disclosure rejected. Volatile results and out of step with IAS and FAS. IAS argued that a fixed asset will general cash flows at least equal to the carrying amount, tax will be payable on these inflows. UK rejected this argument. Two approaches to providing for DT discussed: • "incremental liability" - where DT must meet the criteria for a liability or asset in its own right. (this approach chosen for FRS) • ""valuation adjustment" - where DT is an adjustment to an assets value. The requirement to meet the criteria as an asset or liability is why re-valued property does not give rise to a DT liability - the liability can be indefinitely deferred or even rolled over. Therefore the criteria for recognition of a liability is not met. Valuation adjustment would mean netting and less consistent with IAS and estimates. DT assets: you need to decide if the asset is going to reverse (beyond reasonable doubt). A liability should always crystallise because you assume going concern. The requirement DT: should be recognised in respect of all timing differences that have originated but not reversed by the balance sheet date; should not be recognised on permanent differences.
Assets Provide DT when there is a difference between capital allowances and depreciation. If balancing charge/allowance can not arise - reverse DT. • • • • Marked to market assets:- Provide if there is a timing difference Land and buildings:- only provide if there is a contract to sell and gain or loss is also recognised. Rolled over tax relief: don't provide holdover relief (postponed): provide
Unremitted earnings of subs Only provide where remittance is accrued - i.e. dividends
DT Assets Deferred tax assets should be recognised to the extent that they are regarded as recoverable. They should be regarded as recoverable to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Only recognise if there is a reversible tax shield and suitable profit to reverse it against. Suitable profits - group relief, already earned by the...