This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.
The Financial Accounting Resource Center™ is a comprehensive research service that provides the full text of standards, the latest news from the Accounting Policy & Practice Report ®,...
Aug. 12 — Any changes to U.K. tax policy for the leasing of plant or machinery probably won't affect reporting requirements under international financial reporting standards, the U.K. Financial Reporting Council (FRC) told Bloomberg BNA.
FRC—which sets accounting, auditing and actuarial standards for the U.K. and Ireland—said in an Aug. 12 e-mail response to questions on proposed changes to U.K. tax law that “it seems unlikely that changes in taxation of leases and plant or machinery will have an impact on the requirements” in U.K. Financial Reporting Standard 101.
The council issued limited amendments to FRS 101 last month that focused primarily on providing exemptions from many of the disclosure requirements of IFRS 15: Revenue from Contracts with Customers.
Publicly listed companies are the main users of the recognition and measurement requirements in IFRS that are included in FRS 101.
In addition, entities within groups have the option to prepare financial statements in accordance with IFRS under FRS 101, but with reduced disclosure requirements.
“It should be noted that companies can include voluntary disclosures that are not required by FRS 101, and that changes to the taxation regime may result in companies making different voluntary disclosures,” the e-mail said.
FRC's response to questions follows the Aug. 9 release of a discussion document by the government's tax department, HM Revenue & Customs (HMRC), outlining options for tax responses to the International Accounting Standards Board's far-reaching leasing accounting standard, IFRS 16.
The standard, published in January, requires that all major leases be reported on a lessee's balance sheet as assets and liabilities by Jan. 1, 2019 and eliminates the distinction between finance leases and operating leases (12 APPR 01, 1/15/16).
The U.K. government's 2016 budget, issued March 16, contained a provision for issuing a discussion document on options for changing the tax treatment of leases of plant and machinery under IFRS 16.
“For lessees adopting the new standard, the link between the accounting and tax treatment will be broken and changes will need to be made to the tax legislation,” the discussion document said.
Companies that use U.K. Generally Accepted Accounting Principles other than FRS 101, however, won't be subject to IFRS 16 unless FRC changes U.K. GAAP to align it with the international leases standard, HMRC said.
FRC expects to develop proposals to amend FRS 102, which encompasses U.K. GAAP, this year that will be subject to a formal consultation by the council in 2017.
“At this stage it is impossible to determine whether or not IFRS 16 will be incorporated into UK GAAP,” FRC said in its e-mail.
HMRC's discussion document proposes four options for tax changes:
Keeping the status quo with few changes would continue to make capital allowances available to lessors except under long-term funding leases, the discussion document said.
HMRC is looking to explore the comparative impacts that each option might have on such business decisions as investment in plant and machinery and the choice of asset finance.
“These options are not exhaustive,” the discussion document said, and HMRC indicated it would “consider other possible approaches to the taxation of leasing that are suggested.”
The proposed revisions to taxation of plant and machinery in the U.K. come amid a broader transformation of the leasing market in recent years, which until recently was dominated by banks seeking tax benefits that could be gained from capital allowances, HMRC said.
The leasing market has changed, though, following the 2008 financial crisis that produced a dearth of liquidity and shrinking tax capacity.
“Over the last few years many banks have largely withdrawn from leasing being replaced by different types of investors, for example investment funds seeking a steady stream of income,” the discussion document said.
These changes to the leasing market have placed different demands on the U.K.’s tax system, HMRC said, which could require more extensive revisions to the tax regime than simply continuing with business as usual.
In soliciting the views of stakeholders, HMRC said it is particularly interested in feedback from lessees, lessors, professional agents and organizations representing professionals.
“After considering responses from the discussion period the government will then formally consult on their preferred option,” HMRC said.
Comments on the discussion document must be received by Oct. 30, 2016.
To contact the reporter on this story: David R. Jones in London at correspondents@bna.com
To contact the editor responsible for this story: Ali Sartipzadeh at asartipzadeh@bna.com
The discussion document is available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/544654/Lease_accounting_changes-tax_response-consultation_document.pdf.
Copyright © 2016 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)