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Contents
29.2 Recognition and measurement of current tax.
29.2.1 Extract from FRS102: Section 29.3 – 29.5.
29.2.2.1 What tax rate to use.
29.2.2.1.1 Ireland and UK rules.
29.2.2.1.2 Impact of change in tax rate – substantively enacted just after year end.
29.2.2.1.3 Change in rate during the year.
29.2.2.2 Uncertain tax positions.
29.2.2.2.2 Assessing whether a provision is required.
29.2.2.3 Interest charged on late payment of taxes.
29.2.2.5 Adjustments in respect of prior years.
26.2.2.6 Recognition of current tax asset.
29.2.2.6.1 Tax paid in excess of tax charge for current and previous periods.
29.2.2.6.2 Tax losses set back to prior periods.
29.2.2.7 Allocation of the tax expense.
29.3 Provision for close company surcharge.
29.3.1 Extract from FRS 102 Section 29.14.
29.4 Recognition of deferred tax.
29.4.1 Extract from FRS102: Section 29.6–29.17.
29.4.2.1 Deferred tax defined and the purpose of deferred tax.
29.4.2.2 Permanent differences.
29.4.2.2.1.1 The one exception for recognising a permanent difference for deferred tax.
29.4.2.3 Temporary differences.
29.4.2.3.1 Temporary differences defined.
29.4.2.3.2 Definition of deferred tax assets and instances where they arise.
29.4.2.3.2.1 When does a deferred tax asset exist including examples.
29.4.2.3.3 Definition of deferred tax liabilities and instances where they arise.
29.4.2.3.3.1 When does a deferred tax liability exist including examples.
29.4.2.3.4 Recognition of timing differences – the rules.
29.4.2.3.4.1 Unrelieved tax losses – The rule recognition or not.
29.4.2.3.4.4 No recognition of timing difference on goodwill recognised in a business combination.
29.4.2.4.0 Initial recognition exception.
29.4.2.4.1 What tax rate to use.
29.4.2.4.1.1 The rate to use for non- depreciable land and investment property.
29.4.2.4.1.2 Review of the recovery of how a deferred tax asset/liability is recovered/settled.
29.4.2.4.1.2.1 Manner of recovery through use.
29.4.2.4.1.2.2 Manner of recovery through sale.
29.4.2.4.1.2.3 Manner of recovery – dual use.
29.4.2.4.1.3 Effect of change in classification of assets.
29.4.2.4.1.4 Determining the value of timing difference.
29.4.2.4.1.4.2 Indexation and how is this accounted for.
29.4.2.4.1.6 Deferred tax impact if unlikely to be taxable/tax deductible on future sale.
29.4.2.4.1.7 Steps involved to working out deferred tax.
29.4.2.4.1.8 Some examples of timing differences.
29.4.2.4.1.8.1.2 Steps to calculate deferred tax for fixed asset timing differences.
29.4.2.4.1.8.1.3 Application of deferred tax to fixed assets.
29.4.2.4.1.8.1.3.1 Deferred tax allowable for tax and depreciable.
29.4.2.4.1.8.1.3.2 Asset allowable for tax, depreciable and revalued.
29.4.2.4.1.8.1.3.3.1 Treatment of depreciation on upward revaluation.
29.4.2.4.1.8.2 Accounting for deferred tax on non-depreciable land.
29.4.2.4.1.8.3 Deferred tax on investment properties carried at fair value.
29.4.2.4.1.8.4 Pension contributions/royalty charges.
29.4.2.4.1.8.5 Finance leases.
29.4.2.4.1.8.6 Unrelieved tax losses.
29.4.2.4.1.8.6.1 Ability to recognise unutilised losses against other deferred tax liabilities.
29.4.2.4.1.8.7 Fair value adjustments.
29.4.2.4.1.8.7.1 Further exampls of deferred tax where fair value adjustments are recognised.
29.4.2.4.1.8.7.1.1 Non-puttable ordinary shares and deferred tax.
29.4.2.4.1.8.7.1.2 Interest rate swaps – derivatives and deferred tax.
29.4.2.4.1.8.7.1.3 Forward foreign currency contract and deferred tax.
29.4.2.4.1.8.8 Defined benefit obligations.
29.4.2.4.1.8.9 Consolidation adjustments.
29.4.2.4.1.8.10 Investment in associates, joint ventures, subsidiaries in consolidated accounts.
29.42.4.1.8.11 Assets partly allowable for tax purposes.
29.4.2.4.1.8.12 Items expensed which are capital in nature (allowable for capital allowances).
29.4.2.4.1.8.13 Transition adjustments to a new GAAP.
29.5 Measurement of deferred tax on business combinations.
29.5.1 Extract from FRS102: Section 29.11.
29.6 Withholding tax on dividends.
29.6.1 Extract from FRS102: Section 29.18-29.19.
29.7.1 Extract from FRS102: Section 29.24-29.24A.
29.7.2.1 Off setting current tax.
29.7.2.2 Offsetting deferred tax assets and liabilities.
29.8 Value Added Tax (“VAT”) and other similar taxes.
29.8.1 Extract from FRS 102: Section 29.20.
29.9 Presentation and disclosures.
29.9.1 Extract from FRS102: Section 29.21-29.27.
29.9.2.1.1 Where to recognise the tax charge/credits in the statements of comprehensive income.
29.9.2.1.2 Where to recognise the tax asset or liability on the balance sheet.
29.9.2.2.2 Accounting Policies.
29.9.2.2.3 Notes to the financial statements.
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The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
29.9 Presentation and disclosures
29.9.1 Extract from FRS102: Section 29.21-29.27
Allocation in comprehensive income and equity
29.21 An entity shall present changes in a current tax liability (asset) and changes in a deferred tax liability (asset) as tax expense (income) with the exception of those changes arising on the initial recognition of a business combination which shall be dealt with in accordance with paragraph 29.11.
29.22 An entity shall present tax expense (income) in the same component of total comprehensive income (i.e. continuing or discontinued operations, and profit or loss or other comprehensive income) or equity as the transaction or other event that resulted in the tax expense (income).
Presentation in the statement of financial position
29.23 An entity shall present deferred tax liabilities within provisions for liabilities and deferred tax assets within debtors.
Disclosures
29.25 An entity shall disclose information that enables users of its financial statements to evaluate the nature and financial effect of the current and deferred tax consequences of recognised transactions and other events.
29.26 An entity shall disclose separately the major components of tax expense (income). Such components of tax expense (income) may include:
(a) current tax expense (income);
(b) any adjustments recognised in the period for current tax of prior periods;
(c) the amount of deferred tax expense (income) relating to the origination and reversal of timing differences;
(d) the amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes;
(e) adjustments to deferred tax expense (income) arising from a change in the tax status of the entity or its shareholders; and
(f) the amount of tax expense (income) relating to changes in accounting policies and material errors (see Section 10 Accounting Policies, Estimates and Errors).
29.27 An entity shall disclose the following separately:
(a) the aggregate current and deferred tax relating to items that are recognised as items of other comprehensive income or equity;
(b) a reconciliation between:
(i) the tax expense (income) included in profit or loss; and
(ii) the profit or loss on ordinary activities before tax multiplied by the applicable tax rate;
(c) the amount of the net reversal of deferred tax assets and deferred tax liabilities expected to occur during the year beginning after the reporting period together with a brief explanation for the expected reversal;
(d) an explanation of changes in the applicable tax rate(s) compared with the previous reporting period;
(e) the amount of deferred tax liabilities and deferred tax assets at the end of the reporting period for each type of timing difference and the amount of unused tax losses and tax credits;
(f) the expiry date, if any, of timing differences, unused tax losses and unused tax credits; and
(g) in the circumstances described in paragraph 29.14, an explanation of the nature of the potential income tax consequences that would result from the payment of dividends to its shareholders.
29.9.2 OmniPro comment
29.9.2.1 Presentation
29.9.2.1.1 Where to recognise the tax charge/credits in the statements of comprehensive income
As per section 29.20 of FRS 102 an entity should recognise current and deferred tax as a tax expense in the income statement/profit and loss account. The one exception to this is deferred tax recognised in a business combination as stated in section 29.11 of FRS 102, in that case it gets recognised in goodwill. (see 29.5.2)
Section 29.22 of FRS 102 makes it clear that the tax or equity expenses should be recognised in the same area where the related cost was recognised e.g. if a revaluation was recognised in other comprehensive income then the tax expense (deferred tax) will also get recognised in the other comprehensive income:
- If fair value adjustments are recognised in the profit and loss then the tax impact is also regognised in the profit and loss (i.e in the tax line)
29.9.2.1.2 Where to recognise the tax asset or liability on the balance sheet
29.9.2.1.2.1 Deferred tax
Section 29.23 of FRS 102 requires that deferred tax liabilities are included within provisions for liabilities and deferred tax assets within debtors.
29.9.2.1.2.2 Current tax
Current tax liability is to be recognised within debtors and current tax assets within debtors.
29.9.2.2 Disclosures
29.9.2.2.1 Overview
It is evident from sections 29.25 to 29.27 of FRS 102 that the tax note should not show any timing differences within it. A reconciliation of the expected tax charge (i.e. applying the standard rate of tax to the profit before tax) to the total tax charge is required. See below for illustration of the disclosure requirement of Sections 29.25 to 29.27 of FRS 102.
29.9.2.2.2 Accounting Policies
Example 41: Extract from the accounting policy note and notes to the financial statements
A Taxation
The company is managed and controlled in the location and, consequently, is tax resident in location. Tax is recognised in the profit and loss account, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case tax is also recognised in other comprehensive income or directly in equity respectively.
Current tax
(i) Current tax is calculated on the profits of the period. Current tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date.
(ii) Deferred tax
Deferred tax arises from timing differences that are differences between taxable profits and total comprehensive income as stated in the financial statements. These timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements.
Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
Current or deferred taxation assets and liabilities are not discounted.
INCLUDE THE BELOW IF CONSOLIDATED FINANCIAL STATEMENTS ARE BEING PREPARED
If a temporary difference arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect accounting or taxable profit or loss, no deferred tax is recognised. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
29.9.2.2.3 Notes to the financial statements
Extract from notes to the financial statements – tax note
|
2015 CU |
2014 CU |
|
| a) Analysis of tax expense in profit and loss: | ||
| Current tax: | ||
| Irish corporation tax on profit/(loss) on ordinary activities | XXX | XXX |
| Adjustment in respect of prior years | XXX | XXX |
| Foreign tax |
XXX
|
XXX
|
| XXXX | XXXX | |
| Deferred tax: | ||
| Origination and reversal of timing differences | ||
| Adjustment in respect of prior periods | ||
| Impact of change in tax rate |
XXXX
|
XXXX
|
| Tax on profit on ordinary activities (see note 9(c)) | 1,500,000 | 1,000,000 |
(i) During the year the Irish Government changed the capital gains tax rate from X% to X% which was substantively enacted on 2016. The year end deferred tax asset/liability has been measured at X% being the tax rate in force at the year end date. The impact of applying the updated rate of x% would result in the deferred tax asset/liability increasing by X%.
| b) Analysis of tax expense in other comprehensive income: | ||
| Deferred tax: | ||
| Actuarial loss on pension scheme | XXXX | – |
| Impact of change in tax rate |
XXXX
|
XXXX
|
| Tax included in other comprehensive income | XXXX | XXXX |
c) Reconciliation of the expected tax charge at the statutory tax rate to the actual tax charge at the effective rate
The assessed tax charge for the year/period is different to the statutory rate of corporation tax in the Republic of Ireland of 10% (2014: 10%). The differences are explained below:
|
2015 CU |
2014 CU |
|
| Profit/(loss) on ordinary activities before tax | 9,463,690 | (XXX) |
| Profit/(loss) on ordinary activities multiplied by statutory rate of corporation tax in Republic of Ireland of 10% (2014: 10%) |
946,369 |
(XXX) |
| Effects of: | ||
| Expenses not deductible for tax purposes | 132,138 | – |
| Income taxed at passive rate | 1,349 | – |
| Indexation on capital gains | 1,349 | – |
| Effect of deferred tax not previously recognised | (9,280) | – |
| Adjustment in respect of prior years | (9,280) | – |
|
Other Deferred tax at a higher rate |
3,618 XXX |
– XXX |
| Higher rate of tax on foreign earnings |
565,875
|
–
|
| 1,500,000 | – |
d) Factors that may affect future tax charges
The company has tax losses carried forward of CUXXXX (2014: CUXXX) that are available indefinitely for offset against future taxable profits. The directors have reviewed the potential deferred tax asset of CUXXX at 31 December 2015 (2014: CUXXX) and have concluded that it is inappropriate to recognise it in the company’s balance sheet at this time.
e) Included in the charge is a close company surcharge of CUXXX. As requested by Section 29.14 of FRS 102 this must be recognised in the year it arises regardless of the fact that if a dividend is ad within 18 months it is no longer payable. If a dividend is paid within this time period, then the tax charge of CUXXX would no longer arise.
Extract from notes to the financial statements – deferred tax note (balance sheet) classified as Provision for liabilities in the balance sheet
Deferred tax
The deductible and taxable temporary differences at the year/period end dates in respect of which deferred tax has been recognised are analysed as follows:
|
2015 CU |
2014 CU |
|
| Deferred tax liabilities/(assets) (deductible temporary differences) | ||
| Capital allowances in excess of depreciation | – | – |
| Provisions | – | – |
| Post-employment benefits | – | – |
| Tax losses carried forward | – | – |
| Other deductible temporary differences |
–
|
–
|
| – | – |
Movement in deferred tax assets and liabilities, during the year, were as follows:
| Capital allowances | Provisions | Tax losses -carried forward | Post- employment benefit | Other | Total | |
| CU | CU | CU | CU | CU | CU | |
| 2015 | ||||||
| At 1 January 2015 | – | – | – | – | – | – |
| Recognised in profit and loss | 177,328 | 307,132 | 307,132 | – | – | 484,460 |
| Acquisitions | – | – | – | – | – | – |
| Recognised in other comprehensive income | 177,328 | 307,132 | 307,132 | – | – | 484,460 |
| Disposals | – | – | – | – | – | – |
| Foreign exchange and other | – | – | – | – | – | – |
| At 31 December 2015 | 177,328 | 307,132 | 307,132 | – | – | 484,460 |
| Capital allowances | Provisions | Tax losses -carried forward | Post- employment benefit | Other | Total | |
| CU | CU | CU | CU | CU | CU | |
| 2014 | ||||||
| At 1 January 2014 | – | – | – | – | – | – |
| Recognised in profit and loss | 177,328 | 307,132 | 307,132 | – | – | 484,460 |
| Acquisitions | – | – | – | – | – | – |
| Recognised in other comprehensive income | 177,328 | 307,132 | 307,132 | – | – | 484,460 |
| Disposals | – | – | – | – | – | – |
| Foreign exchange and other | – | – | – | – | – | – |
| At 31 December 2014 | 177,328 | 307,132 | 307,132 | – | – | 484,460 |
(i) The net deferred tax liability/asset expected to reverse in the 2016 year is CUXXXX. The reversal relates to the timing difference on tangible fixed assets and capital allowances through depreciation and amortisation. The above amount also incorporates the expected usage of losses carried forward.
(ii) The unused tax losses are as year end as detailed above. There are no unused tax credits. There is no expiry date with regard to these losses.
(iii) No deferred tax is recognised on unremitted profits of its associates as there is no liability to tax on these when remitted.
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Examples
Example 1: Impact of change in tax rate – substantively enacted just after year end.
Example 2: Change in rate during the year.
Example 3: Carry back of losses.
Example 4: Close company surcharge.
Example 5: Close company surcharge – no distributable reserves.
Example 6: Losses forward – recognition of deferred tax.
Example 7: Deferred tax liabilities available to utilise deferred tax assets.
Example 8: Conditions for retaining tax allowances have been met.
Example 9: Dual use manner of recovery.
Example 10: Indexation of base cost – non depreciable asset.
Example 11: Allowable for tax and depreciable.
Example 12: Asset allowable for tax, depreciable and revalued.
Example 14: Transfer of depreciation on revalued amount from profit and loss reserves.
Example 16: Fair value movements and deferred tax impact.
Example 18: Pensions/royalties.
Example 19: Pensions/royalties.
Example 21: Non-puttable ordinary shares and deffered tax.
Example 22: Interest rate swaps – derivatives and deffered tax.
Example 23: Forward foreign currency contract and deffered tax.
Example 27: Defined benefit obligations.
Example 29: Deferred tax on net defined benefit asset/liability.
Example 30: Recognising deferred tax.
Example 31: Deferred tax on consolidated adjustments – elimination of profit from inventory.
Example 32: Undistributed profits of a subsidiary.
Example 33: Assets partly allowable for tax purposes.
Example 34: Deferred tax on business combinations.
Example 36: Dividend received.
Example 37: Offset of current tax assets and liabilities.
Example 38: Offset of current tax assets and liabilities.
Example 39: Offset of current tax assets and liabilities.
Example 40: Offset of deferred tax assets and liabilities.
Example 41: Extract from the accounting policy note and notes to the financial statements.
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