Businesses impacted by changes to the main financial reporting standard, FRS 102, should be alert to potential repercussions for their tax position.
Changes to FRS 102
Changes to FRS 102 take effect for accounting periods starting on or after 1 January 2026, introducing a new five-step model for revenue recognition and altering lease accounting. The distinction between operating and finance leases for lessees is removed, bringing most leases directly onto the balance sheet.
The impact of these developments can be far-reaching, extending to tax liabilities, timing, and wider compliance issues. Because the Corporation Tax calculation is based on accounting profit before tax, timing changes in accounting profit can alter the timing of taxable profits.
Wider compliance consequences
Changes to revenue recognition may accelerate or defer taxable income, and transitional adjustments will typically impact tax liability in the first applicable accounting period. Furthermore, higher asset and liability levels from leasing changes can affect thresholds for compliance regimes like off-payroll working or eligibility for tax reliefs like the Enterprise Investment Scheme.
As these changes bed in, early discussion is recommended. Please don’t hesitate to get in touch.
