INTM523160 - Thin capitalisation: practical guidance: accountancy issues: acceptable GAAP for thin cap purposes

IFRS and UK tax legislation

Finance Acts 2004 and 2005 contain legislation aimed at ensuring companies drawing up their accounts in accordance with IFRS receive broadly equivalent tax treatment to companies adopting UK GAAP.

• FA04/S50-54 and FA04/SCH10 introduced the first tranche of legislation covering the adoption of IFRS and the effect of IFRS on UK tax.
• FA05/S80-84 and FA05/SCH10 introduced further legislation covering the same areas.

A paper considering these legislative changes which has now been archived is available in more detail on The National Archives webiste. Nearly all the legislation has effect for periods of account beginning on or after 1 January 2005.

IFRS is an acceptable financial reporting framework

FA04/S50 redefines “generally accepted accounting practice” to include both EU-adopted IFRS and UK GAAP for periods beginning on or after 1 January 2005 (the date in the EC Regulation).

The main thrust of the section is to make IFRS as acceptable for tax purposes as UK GAAP; wherever a provision (such as FA98/S42) refers to GAAP it will include a reference to IFRS.

The section applies where companies and other entities prepare accounts using IFRS. This means that partnership accounts or the accounts of a unit trust may be prepared in accordance with IFRS.

Note that entities applying FRS 101 or FRS 102 are adopting a UK GAAP not an IFRS financial reporting framework. Nevertheless, it should be noted the requirements in FRS 101/FRS 102 are broadly equivalent to those in IFRS.

Further information on the interaction of IFRS, GAAP and the UK tax legislation can be found on the GOV.UK website.