Businesses impacted by change to the main financial reporting standard, FRS 102, should be alert to the potential for repercussions for their tax position as a result.
Change to FRS 102 takes effect for accounting periods starting on or after 1 January 2026, with a new five-step model for revenue recognition, and change to the way that leases are accounted for. The distinction between operating and finance leases for lessees is axed, so that most leases will be brought onto the balance sheet.
The impact of these developments, however, can be unexpectedly far-reaching. The ripples can extend to the tax liability, and its timing, as well as wider compliance issues. The basis for the Corporation Tax calculation being the accounting profit before tax, any timing changes in accounting profit can change the timing of taxable profits. Change to revenue recognition may accelerate or defer taxable income, and transitional adjustments will typically impact the tax liability in the first accounting period to which the new standard applies. Where leasing arrangements are substantial, the balance sheet is likely to show significantly higher levels of assets and liabilities. Change to figures for gross assets and turnover can have other consequences, such as entry into compliance regimes like off-payroll working; or eligibility for tax reliefs, such as the Enterprise Investment Scheme and Seed Investment Scheme.
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