FRS 102 – Should I care?

You should have heard of FRS 102 by now. Every accountant and auditor is talking about it. But does it matter? You provide your accountant with a trial balance and all other year end information and they put it into a format acceptable by Companies House. Your accountant will explain the changes to you once you have your first set of FRS 102 accounts and as long as Companies House, your lenders and HMRC accept them then they are what they are, aren’t they?

As a Tax Partner, I was taken aback when I was asked to write an FRS 102 blog. It has been many years since I last prepared a set of accounts. I was shocked the other day to discover SSAP 2 no longer exists!

But of course it matters, because like me, you are interested in tax, and believe it or not FRS 102 can impact your tax bill.

Firstly, the accounting profit is the basis for calculating your taxable profit. So unless tax law dictates otherwise (such as replacing depreciation for capital allowances) the accounting results will impact tax. If FRS 102 increases profit, it will increase tax too (and the reverse is true of course).

Secondly, FRS 102 impacts goodwill amortisation. Goodwill that is currently being amortised may be amortised at a faster rate. If this amortisation is attracting Corporation tax relief then the tax relief will be accelerated, which may be good news, but the impact on reserves needs careful consideration, see below. This is even more important if Corporation tax relief is not available for the amortisation. The recent Summer Budget saw to this by abolishing such tax relief for goodwill purchased on or after 8 July.

Finally, remuneration planning. A topic close to most people. The often popular small salary/large dividend remuneration model relies on their being sufficient distributable reserves to pay the dividend. Any impact, including the goodwill point above, that FRS 102 has on such reserves could result in the small salary/large dividend model being no longer appropriate. This, coupled with the new tax regime for dividends announced in the Summer budget, could necessitate altering your remuneration structure in the future.

FRS 102, should I care? Yes you should.

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