Generic ACCA slide

1. Generic ACCA slide

2. Opening title slide. Highlight and overwrite dummy title. Restrict yourself to a maximum of 3 lines. This text is set to align at the bottom. Do not change the fonts or sizes used. International Accounting Standards: The UK Tax Implications

3. History teaches us that once upon a time “ordinary principles of commercial accountancy” were starting point for tax, but far from the finishing point. In 1990s 3 seminal cases, esp. Gallagher v Jones. Section 42 FA 1998 said “follow GAAP” for tax in Case I, subject to statutory adjustments s 42 declaratory of existing law – Small (HMIT) v Mars (UK) Ltd See also s 25 ITTOIA for IT 2005/06 onwards Why are there tax implications of accounting standards at all?

4. FA 1993 Forex - follows SSAP 20 FA 1996 Loan relationships FA 1998 – Income from land FA 2002 – Intangible fixed assets FA 2002 – Derivative contracts FA 2004 – Management expenses New statutory tax codes also follow accounts

5. Public policy – bribes, entertaining Transfer pricing Structural – debt/equity, charges on income Avoidance - Tax neutrality – e.g. within groups Capitalised assets, capital expenditure and capital receipts Fiscal incentives – e.g. R & D Symmetry – e.g. employee related matters Volatility & tax capacity – farmers’ averaging, hedging “True reflection” – reserving rules for general insurers Miscellaneous – e.g. herd basis, para 5 Sch 30 ICTA The departures

6. The previous slides are about UK GAAP So why is IAS relevant? UK GAAP & IAS

7. DTI Regulations made 2004 after consultation – UK permits but does not require all companies to use IAS for all accounts, single or consolidated This IAS is EC approved version - IAS 39 with 2 carveouts ASB makes FRS 23, 25 & 26 as UK GAAP versions of IAS 21, 32 & 39 to be UK GAAP, to be used if EC FV directive used Existing UK GAAP (inc SSAP 20) for SMEs etc IAS & tax - background

8. We realised we needed to consider status of IAS single accounts for tax Oversight group set up 2003 from IR, HMT, ASB, business & profession to ensure all relevant issues being considered Sub groups or informal discussions on IAS 32 & 39 Insurance IFRS 4 Biological assets IAS 41 Collectives IAS & tax - developments

9. sections 50 – 54 & Sch 10 Finance Act 2004 Dec 2004 regulations sections 80 - 84 & Sch 4 FA 2005 more in 3rd 2005 Finance Bill? Further regulations IAS & tax - the outcome

10. Sections 50 to 54 and Schedule 10 cover the IAS matters Section 50: EC IAS = UK GAAP (replaces s 836A ICTA) Section 51: Don’t mess around in groups Section 52 & Schedule 10 Pts 1 & 2: LR & DC changes Section 52 & Schedule 10 Pts 3 & 4: Intangibles & Currency Accounting Section 53: Do more R & D Section 54: share dealers? Start date - periods beginning 1 1 2005 Finance Act 2004 – what is in it

11. Schedule 26 Orders - hybrid instruments & embedded derivatives Change of Accounting Practice regs defer most transitional adjustments to 2006 deal with tainted “held-to-maturity” assets Disregard Regs - cover hedging of EGLs taken to P &L and cash flow hedges of esp. forecast transactions Regulations

12. IAS single accounts OK for tax purposes. Redefines “GAAP” – UK GAAP or IAS IAS = full IAS or EC adopted IAS FA 2004 – section 50 (amended by FA 2005)

13. If a group uses UK GAAP for one member and IAS for another AND there is a transaction between them AND a tax advantage arose as a result of different accounting frameworks Then IAS co must use UK GAAP but only for THAT transaction. See Companies Act & DTI Guidance Notes FA 2004 – section 51

14. R & D relief/credits under SSAP 13 given as amounts hit P & L – either expensed or amortised IAS 38 – capitalisation mandatory Solution - R & D relief given as expenditure incurred whether expensed or capitalised FA 2004 - section 53

15. If amortised goodwill written back to cost (optional under IFRS 1) – charge on uplift (capped at previously given debits) relief for subsequent impairment from cost Rules for disaggregation of goodwill under IAS into separate IP assets, including application of 4% election If previously expensed (and deducted Case I) software treated as asset under IAS 38- Paragraph 116F Sch 29 FA 02 – credit in 2005 for value of asset OR Paragraph 6 Sch 22 FA 2002 – no credit, no future relief FA 2004 – Schedule 10 (amended FA 2005): Intangibles

16. Rules rewritten and modernised (twice) Deals with difference of functional & presentational currency If FC £, PC non-£ go to £ records and ignore FX on translation into PC If FC non-£, PC £ follow £ accounts If FC & PC non-£ gives clear rules for translating non-£ accounts into £ for tax purposes – use spot for identifiable transactions or average for year No carry forward or back in currency terms Special CFC rules repealed FA 2004 - Schedule 10 (amended FA 2005): Currency accounting

17. Abolishes “authorised accounting methods” for taxing LR & DC – not needed now there is comprehensive accounting standard for all assets and liabilities Tax must follow GAAP (UK or IAS) - so “fair value” or “amortised cost” as used in accounts Exceptions maintained – e.g. connected persons bad debt/impairment loss FA 2004 - Sch 10 Pts 1 & 2 (am. FA 2005): main effects

18. Added new rules about impaired debt acquired by connected persons - para 4A Sch 9 FA 96 general provisions for bad debt - para 6D Sch 9 FA 96 abolition of sovereign debt rules restoration of index-linked gilt exemption with modifications defining exchange gains and losses in fair value cases Schedule 4 FA 2005

19. Complex tax rules splitting capital gains or exempt element from e.g. convertible repealed - Now follow IAS 32/39 & FRS 25/26 on “complex financial instruments” – s 94A FA 1996 says split a hybrid into-- Host contract all taxed as income under LR Embedded derivative – within derivatives tax rules Capital gains or exemption kept with modifications – now see FA 2002 Sch 26 Pts 2 & 9 Order SI 2004/2001. FA 2004 - Schedule 10 Pts 1 & 2 (am. FA 05) : Hybrid instruments & embedded derivatives

20. New rules for hedging UK GAAP style hedge accounting synthetic asset or liability (integration of hedge and hedged item) contract rate accounting for forwards is retained – “necessary departure” FA 2004 - Sch 10 Pts 1 & 2 (am. FA 05): hedging

21. The “Disregard” Regulations cover Matching Forex gains where no taking to reserves or attributed to guarantors FX, commodity and debt futures gains and losses where asymmetry e.g. anticipatory hedge of forecast transaction disregarded until transactions occurs or contract matures Interest rate contract fair value gains disregarded and accruals basis including synthetic asset/liability accounting substituted Still under development The LR & DC (Disregard of Profits and Losses) Regulations

22. Take all transitional adjustments and PPAs and defer to 2006, including Available for sale assets – one-off change from cost to FV Impairment losses esp. for banks greater than current specific provisions Effective interest method adjustments (stepped interest, fees etc) Derivatives where Disregard Regs elected out of Information sought on size/direction of adjustments The Change of Accounting Practice Regulations

23. Embedded derivatives in non financial instruments – para 45L Schedule 26 Follow accruals accounting, not fair value Will be able to elect irrevocably to follow fair value If election, transitional adjustments deferred Schedule 26 Order - other issues

24. Keep abreast of IASB/FASB project on revenue recognition Recognise profit on entering into contract? Comprehensive income statement – no more P&L or STRGL ASB convergence programme e.g. ED on revenue (Q2 05) ED on business combinations (Q2 05) ED on derecognition etc of FI (Q2 05) Medium term tasks for oversight group

25. Highlight and overwrite dummy text with your titles and texts. Restrict yourself to a maximum of 6 points per slide. If you require more points on a specific topic use as many following slides as necessary. Do not change the fonts or sizes used in the blanks. If you require more of any slide, go to the ‘Slide Sorter View’, click on the required slide and hit ‘Control D’, this can be repeated to create as many duplicates as required. Case study UITF 40 • SSAP 9 values stock and WIP at cost or NRV • FRS 5 December 2003. • Point of WIP becoming debtor value at sales price • - ACCA view no change from SSAP 9

26. Highlight and overwrite dummy text with your titles and texts. Restrict yourself to a maximum of 6 points per slide. If you require more points on a specific topic use as many following slides as necessary. Do not change the fonts or sizes used in the blanks. If you require more of any slide, go to the ‘Slide Sorter View’, click on the required slide and hit ‘Control D’, this can be repeated to create as many duplicates as required. Case study UITF 40 UITF “40” draft issued early 2005 - nothing in draft indicated concern - actual UITF 40 issued March 2005 serious cause of concern UITF 40 effective from end June 2005 Requires sale value valuation for “WIP”

27. Highlight and overwrite dummy text with your titles and texts. Restrict yourself to a maximum of 6 points per slide. If you require more points on a specific topic use as many following slides as necessary. Do not change the fonts or sizes used in the blanks. If you require more of any slide, go to the ‘Slide Sorter View’, click on the required slide and hit ‘Control D’, this can be repeated to create as many duplicates as required. Case study UITF 40 Big increase in value for WIP up to 400% Hence big profit rise ACCA and other bodies discussing “spreading” for increased profits across 10 years HMRC meetings 12 October and supply of data to show impact UK has special SME standards called FRSSE ACCA considers may be way to avoid UITF 40 by SMEs

28. Highlight and overwrite dummy text with your titles and texts. Restrict yourself to a maximum of 6 points per slide. If you require more points on a specific topic use as many following slides as necessary. Do not change the fonts or sizes used in the blanks. If you require more of any slide, go to the ‘Slide Sorter View’, click on the required slide and hit ‘Control D’, this can be repeated to create as many duplicates as required. Case study UITF 40 UITF 40 largely similar to IAS 18 Clear present danger for future of IAS adoption Way forward to work with Governments to mitigate adverse impact Have legal framework in place for future evolution of IAS

29. Highlight and overwrite dummy text with your titles and texts. Restrict yourself to a maximum of 6 points per slide. If you require more points on a specific topic use as many following slides as necessary. Do not change the fonts or sizes used in the blanks. If you require more of any slide, go to the ‘Slide Sorter View’, click on the required slide and hit ‘Control D’, this can be repeated to create as many duplicates as required. Text only slide title restrict to 2 line maximum Point 1 Point 2 Point 3 Point 4 Point 5 Point 6

30. Highlight and overwrite dummy text with your titles and texts. Restrict yourself to a maximum of 6 points per slide. If you require more points on a specific topic use as many following slides as necessary. Do not change the fonts or sizes used in the blanks. If you require more of any slide, go to the ‘Slide Sorter View’, click on the required slide and hit ‘Control D’, this can be repeated to create as many duplicates as required. Text only slide title restrict to 2 line maximum Point 1 Point 2 Point 3 Point 4 Point 5 Point 6

31. Closing slide, can be a repeat of the opening slide or a ‘thank you’ as here. This text is set to align at the bottom. Do not change the fonts or sizes used. Thank you