This article was first published in the June 2011 UK edition of Accounting and Business magazine.
UK GAAP deferred tax calculations and disclosure will be affected by the 2011 Budget, which announced a reduction in the rate of corporation tax from the previously announced rate of 27% to 26% from 1 April 2011, with further annual reductions of 1% each year, culminating in a rate of 23% on 1 April 2014.
The change to 26% was substantively enacted by way of a Budget resolution on 29 March 2011. However, subsequent changes to the corporation tax rate are expected to occur in separate finance acts over the next three years.
Changes in tax law are not reflected in the amounts included in the balance sheet until the law has been substantively enacted at the relevant balance sheet date.
However, FRS 21, Events After the Balance Sheet Date, requires non-adjusting post balance sheet event disclosure in relation to announced changes in tax rates if the effect is material, even if those changes have not yet been substantively enacted.
Therefore, UK GAAP preparers will have to consider the changes in tax rates, both when preparing the balance sheet deferred tax figures, and when they are preparing their post balance sheet events note.
Yvonne Lang, director, and Kern Roberts, associate director, Smith & Williamson