Having spent more time on video last week than my niece spends with her friends on TikTok, I’ve now got used to this whole working from home thing. I’ve realised that with everything going on, people are now chalking up all wins as big wins. The most memorable have been:

  • Yes! – The salmon I found in the freezer from four years ago still tasted fine!
  • Yes! – When I went out for a walk yesterday lunchtime, I didn’t get within 2 metres of anyone!
  • Yes! – I don’t need to adjust my accounts to reflect a corporate tax rate of 19%! (the audit wasn’t going so well).

Following the Spring Budget speech on 11 March, many of our clients have been unsure as to how the decision to maintain the 19% tax rate (as opposed to dropping it to 17%) impacts the measurement of tax balances.

IAS 12 Income taxes paragraph 46 notes that current tax liabilities and assets should be measured at the amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Substantive enactment occurs when any future steps in the enactment process will not change the outcome. This underlying principle should be used to determine if a rate is substantively enacted in a particular territory [IAS 12 para 48].

So following the budget speech, should companies be using 19% as a substantively enacted tax rate? We would say not at that stage. Based on our understanding of IAS 12 in the context of UK legislation. We would consider a UK tax rate to be ‘substantively enacted’ if it is included in either: 


  • a Bill that has been passed by the House of Commons and is awaiting only passage through the House of Lords and Royal Assent; or 
  • a resolution having statutory effect that has been passed under the Provisional Collection of Taxes Act 1968 (PCTA 1968).

The revised tax rate was substantively enacted by a resolution under the Provisional Collection of Taxes Act 1968 on 17 March 2020. 

This means that for entities with period ends after 17 March 2020, the tax should be based on the new substantively enacted rate of 19%. 

So, is that the end of it for December year ends? Unfortunately, not as you may need to consider the requirements of IAS 10 Events after reporting period. The announced change in tax rate would be considered a non-adjusting event and IAS 10 would require disclosure of the change in the tax rates, if they have a significant effect on current or deferred tax. This would include disclosing the quantitative impact on the tax balances.

It may not seem like much, but this small change could save you an unrequired increase in your tax expense. We chalk this up as a big win when you think of all the other factors that are negatively impacting your accounts and keeping you away from your next TikTok video. 

If you would like to discuss the above or any other questions relating to financial reporting, please do not hesitate to get in touch. My contact details are below.  

Jon Wallis

Financial Reporting Advisory Group

+44 (0)20 7728 2864

jon.w.wallis@uk.gt.com

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