Update: Deferred tax rates
Mr Johnson’s recent tax rate announcement has caused some interest in tax circles – certainly among those of us with clients accounting for deferred tax assets or liabilities.
The general principle of deferred tax and tax rates used to value gross timing differences in FRS102 and IAS12 is to use the substantially enacted rate (the rate included in law that has passed through its third reading in the House of Commons). Note – you can have a blended rate if the deferred tax is reversing quickly.
While many deferred tax assets and liabilities are valued at 17% in terms of rate, Mr Johnson has deferred the 17% enacted corporation tax rate that was to apply from next year. Mr Corbyn is already committed to a higher rate. However, neither are substantially enacted yet and neither are likely to be until next year.
The current rate used for many deferred tax calculations is 17%, but that is not going to be the corporation tax rate we get – at least not for a while. We will hopefully get guidance from the IASB/FRC about how to account for this uncertainty in due course. In the meantime, where a change in deferred tax rate makes a material difference, companies may wish to think about disclosure notes setting out what the impact will be of this rate uncertainty.