FRS 102: proposed amendments for gift aid payments

In relation to the accounting for gift aid payments made, or expected to be made, from a subsidiary to its charitable parent, the FRC has published FRED 68 which proposes draft amendments to FRS 102 (Section 29 Income Tax).

The proposed amendments add an exception whereby the entity may recognise the income tax effects of that gift aid payment at the reporting date:

  • if an entity is wholly owned by a charitable parent (as defined);
  • it is probable that a gift aid payment will be made within nine months of the reporting date; and
  • that payment will qualify to be set against profits for tax purposes.

This exception will mean that a wholly owned non-charitable subsidiary will not need to recognise a current tax expense when it is probable that its taxable profits will be relieved by an expected gift aid payment. This will be the case whether or not a liability for the expected gift aid payment has been recognised at the reporting date. 

The income tax effects shall be measured consistently with the tax treatment planned to be used in the entity’s income tax filings. A deferred tax liability shall not be recognised in relation to such a gift aid payment. 

Normally the tax effects of a transaction are recognised in the same component as the underlying transaction. This would mean for a distribution, that any tax relief provided on its payment would be recognised in equity along with the distribution. The FRC is also proposing an amendment to this rule by adding an exception whereby the tax expense/(income) effects of distributions to owners are recognised in profit or loss, rather than in equity. This will mean that the tax relief arising from an expected gift aid payment will be presented in profit or loss.

The proposal is for these amendments to be effective for accounting periods commencing on or after 1 January 2019, with early application permitted provided that all of the amendments to result from FRED 67 – Triennial review 2017 – Incremental improvements and clarifications are applied at the same time.

See RSM’s response