CFM16545 - Transition to IAS: the Change of Accounting Practice Regulations: amounts deferred

Change of Accounting Practice: amounts deferred

This guidance describes the treatment of loan relationships and derivative contracts in accounting periods beginning on or after 1 January 2005.

The debits and credits prescribed under Regulation 3 of the Change of Accounting Practice Regulations are not to be brought into account in the first accounting period beginning on or after 1 January 2005. Instead, they are brought into account in accordance with Regulations 3A and 3B, unless Regulation 3C applies ( CFM16550). The effect of the regulations for most companies is to defer recognition of debits and credits arising on the transition to IAS and spread them over 10 years starting in 2006.

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 first accounting period beginning on or after 1 January 2006, or if later, the period in which the change to IAS 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 ICTA88/S343, or a transfer of investment, property or insurance business to a UK company or the UK permanent establishment of a non-resident company.

Regulation 3B - bank and building society dormant accounts

The second case to which deferral 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, that is, dormant accounts.

Regulation 3B brings loan relationship amounts arising under FA96/S85B(1)(b) (prior period adjustments recognised in the statement of recognised gains and losses/statement of changes in equity) and FA96/SCH9 paragraph 19A into charge, in the first accounting period ending on or after 1 January 2007. The deferral to 2007 is intended to allow time for further consideration by the Treasury of the treatment of dormant accounts. Further regulations will be issued in due course to either defer the bringing into account of these amounts for another year or to set out in detail how the amounts will be taxed or relieved.