FRS 105 can be applied by unincorporated businesses that meet the size criteria
Although FRS 105 states that it’s only applicable to companies, qualifying partnerships (as defined in Partnerships (Accounts) Regulations 2008) and limited liability partnerships who choose to apply the micro-entities regime, HMRC has stated, in FRS 105 tax implications – overview that it will generally accept calculations of profit for unincorporated businesses prepared under FRS 105 if they meet the size criteria to apply FRS 105.
This document is aimed at businesses paying corporation tax or income tax. It considers the tax treatment for differences HMRC sees as existing between FRSSE and FRS 105. It also highlights the transitional rules and re-emphasises the difference between a change in accounting policy and rate adjustments.
The usual rules are highlighted when changing from one valid basis on which the profits of a trade are calculated to another valid basis and accounting for these adjustments in the current year. BIM34130 states:
‘S231 Income Tax (Trading and Other Income) Act 2005, S182 Corporation Tax Act 2009
In what follows, the accounts for the period before the change are referred to as the "old accounts" and the accounts for the period following the date of change are referred to as the "new accounts".
The amount of the adjustment is calculated by:
Any of the amounts deducted in this computation cannot be deducted again in computing the profits of the trade.’
This adjustment will occur when the transition requirements of FRS 105 in section 28 apply. It requires that the balance sheet is ‘presented in respect of the accounting transition date:
The guidance also looks at the adjustments that may give rise to a change as well as areas where a specified treatment is required, even where this has always existed.
The prime example of the latter is the treatment of holiday pay accrual. Here the guidance does acknowledge that the treatment hasn’t changed but that it is an area that is worthwhile re-highlighting. It simply references Part 20 Chapter 1 CTA 2009 (for Corporation Tax) and sections 36 to 37 ITTOIA (for Income Tax), both of which allow for a deduction if the accrued amount is paid/used within nine months of the year end.