CFM76090 - Other tax rules on corporate finance: change of accounting basis: the COAP Regs: spreading rules

SI 2004/3271: regulations 3A and 3B

Amounts deferred

Debits and credits which are prescribed (see CFM76080) are either excluded altogether by Regulation 3C (see CFM76100)or deferred in accordance with regulations 3A or 3B. The effect of the regulations for most companies is to defer recognition of debits and credits arising on the transition and spread them over ten years starting in the year of transition.

Regulation 3A - ten year spreading

Regulation 3A sets out how the majority of deferred transitional adjustments will be brought in for tax purposes. It brings in one-tenth of the debits or credits in each of the ten years starting with the period in which the accounting change takes place. The amounts are to be apportioned between accounting periods if necessary.

If the company ceases to be within the charge to corporation tax, all outstanding amounts are to be brought into account in its last accounting period. However, this is not the case if there is a transfer of tax amounts under CTA10/Part 22, or a transfer of investment, property or insurance business to a UK company or the UK permanent establishment of a non-resident company.

Where amounts which would otherwise be relieved or taxed over 10 years represent debits and credits which would have been caught by Regulation 3C(2)(ca) or (da) (see CFM76100) had these regulations been in force earlier, such amounts are not allowable or taxable for all accounting periods beginning on or after 1 January 2009. The same applies to any amount apportioned to an accounting period beginning on or after 1 January 2008 and ending after 31 December 2008.

Regulation 3A(2A) - five year spreading (own credit risk)

A special rule applies to transitional adjustments arising in respect of amounts of own credit risk. This rule applies where a company opts to measure financial liabilities at fair value. In such circumstances, IFRS 9 typically requires amounts in respect of own credit risk to be recognised in other comprehensive income (OCI) rather than being recognised in profit or loss under IAS 39.

Such transitional amounts are recognised over five years based on the following percentages: 40%, 25%, 15%, 10% and 10%.

For an example, see CFM76120.

Regulation 3B - bank and building society dormant accounts

The second case to which deferral of credits or debits applies is set out in regulation 3B. This applies to bank and building society accounts that had no carrying value at the end of the last period to which old UK GAAP applies, known as dormant accounts.

Regulation 3B requires ‘specified amounts’ to be brought into account in accounting periods of the company beginning on or after 1 January 2008 in respect of such accounts. ‘Specified amounts’ are debits and credits ‘which represent an adjustment in the value for accounting purposes of a liability owed by a bank or building society to a depositor’, but only to the extent that they represent the reversal of amounts that have been brought into account for corporation tax in periods before the accounting date change.

Amounts are brought into account in the same way as regulation 3A, except that amounts which would otherwise have been brought into account in periods beginning before 1 January 2008 are brought in on the first accounting period beginning on or after that date.

The provisions in regulation 3A which apply when a company ceases to be within the charge to corporation tax also apply for regulation 3B.