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FRS 102 could have significant tax and reporting implications for small businesses

Andy Page

The introduction of the Financial Reporting Standard (FRS102) currently affecting small businesses represents a major re-write of UK GAAP (Generally Accepted Accounting Practice), and could substantially affect reported profits and tax charges.

The move to FRS102 signals much more than a change in the way the accounts are presented. Not only will accounts prepared under FRS102 look very different and use different terminology but the adoption of the new standard could have a significant impact on the reported results and financial position of the organisation. 

FRS 102 has been phased in over the past two years, with larger businesses and organisations affected first, (for accounting periods commencing on or after 1 January 2015)  and smaller companies a year later (for accounting periods commencing on or after 1 January 2016) - meaning that many small businesses currently find themselves going through the transition process.

As part of the transition, there are a number of choices to be made on first time adoption, which can have wider, long-term implications.  Care is needed to ensure that the choices made best fit with the business’s requirements. 

In addition, the move is likely to affect the reported figures for most businesses. Changes to the way assets and liabilities are reported under FRS 102 could impact on overall reported profits, which in turn could have a significant impact on tax liabilities.

To complicate matters further, another new standard has been introduced for the very smallest organisations (known as micro-entities).  This new standard, FRS 105, is a simplified version of FRS 102 and removes some of the complexity of FRS 102.  However, although simpler, FRS 105 may not be the most appropriate option for all micro-entities, so will need to be considered on a case by case basis. Businesses eligible to adopt FRS 105 need to carefully explore whether this would be of benefit to them.

At the same time, a number of changes to the Companies Act have also been introduced which affect the disclosure requirements for small companies, and, perhaps more significantly, the level of information placed on public record with regard to the filing requirements with Companies House.

Due to the complexity and impact of all these changes, it is important that business owners take the time to understand how they will be affected. Business owners should seek professional help to guide them through the transition process, ensuring that not only are the accounts technically compliant with the new legislation, but that the correct advice is obtained with regard to tax liabilities and the overall view presented by the financial statements.

If you would like further help or advice on FRS 102, please contact us