Corporation tax rate reduction is substantially enacted


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Iain Selfridge

The Government continues with its drive to reduce the level of corporation tax in the UK and on the 3rd of July they passed the latest bit of legislation that confirms that the corporation tax rate from the 1st of April 2013 will be 23%. So for companies with year ends on or after the 3rd of July this year you should be, when you are calculating your deferred taxes, using a rate of 23% for those things that you expect to realise either, deferred tax assets or liabilities after the 1st of April 2013.

The Government is still continuing to push it down and their next intention is to bring the rate down from 23 to 22% in April 2013, but we can’t anticipate that for deferred tax accounting until it has actually passed into legislation which again will probably be June or July next year.

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).