As we discussed in the May edition of Accounting briefing, a proposed reduction of the main rate of corporation tax to 23% from 1 April 2013 was included in the March 2012 Budget. This reduction was included in the Finance Bill 2012, which received its third reading in the House of Commons on 3 July 2012 and is now awaiting passage through the House of Lords and Royal Assent. The rate reduction is therefore now substantially enacted for accounting purposes.
Companies subject to the main rate of corporation tax with balance sheet dates on or after 3 July 2012 (for example, July year ends) should measure deferred tax assets and liabilities being realised or settled after 1 April 2013 based on the new 23% rate; those being realised or settled before 1 April 2013 should be measured at the 24% rate previously enacted.
Companies with balance sheet dates between 26 March 2012 and 3 July 2012 (for example, March or June year ends) should measure all deferred tax assets and liabilities being realised on or settled after 1 April 2012 based on the 24% rate.
Companies with balance sheet dates before 26 March 2012 (for example, December year ends), should use the 25% rate that was enacted under the Finance Bill 2011.
The further decrease to 22% from 1 April 2014 is not expected to be substantively enacted until a future Finance Bill is approved. This reduction should not be taken into account when calculating deferred tax assets and liabilities at present.
Where the impact of the decrease in rate will be material to the reporting entity, but the rate is not substantively enacted at the balance sheet date, management should disclose the impact of the change under International Accounting Standard (IAS) 10, ‘Events after the reporting period’ (or Financial Reporting Standard (FRS) 21).