FRS 102: proposed amendments for gift aid payments – RSM response

Overall, RSM is supportive of the amendments proposed by the Financial Reporting Council in FRED 68. However, we would like to see the scope extended to cover all scenarios where it is probable that a gift aid payment will be made.

Our responses to the specific questions contained within the consultation are set out below.

Question 1

Do you agree with the proposed amendments to FRS 102 and that this will improve the relevance of information provided to users of the financial statements? If not, why not?

We agree with the proposed amendments to Section 29 of FRS 102 which, in our experience, reflect the approach taken currently by many charities. However, we would like to see the scope of the changes extended to cover the recognition of deferred tax by charitable trading subsidiaries in all scenarios. At present, the proposed amendments apply where it is probable that a gift aid payment will be made within nine months of the reporting date. However, there are instances where, for example, a charitable subsidiary has a policy of revaluation of property. Deferred tax would be recognised on any revaluation under both the current version of FRS 102 and the proposed revised version of the Standard. However, in many such scenarios, the intention is that any profits arising on eventual sale of the property will be donated to the parent charity. Hence, our view is that the same principles should apply here as will apply where it is probable that a gift aid payment will be
made within nine months.

We agree with the decision, as referred to in paragraph 18 of the Corporate Reporting Council's Advice, not to provide an exemption from paragraph 32.8 on the basis that any such exemption would be inconsistent with the classification of donations by a subsidiary to its charitable parent as distributions as set out in TECH16/14BL.

It would be helpful if the advice could provide further examples of where a legal obligation arises. For example, agreement by the board of the subsidiary as documented in the minutes of the board meetings would be sufficient rather than a deed of covenant needing to be entered into. Our view is that the measurement of tax whether it be current or deferred should reflect the rate of tax that is expected to be payable taking into account the effect of expected future gift aid payments based on the subsidiary's past practices and expectation of future distributions, and not restricted to those payable in the next nine months. We believe that using such a rate, which will often be nil, would reflect the economic reality of many of these trading subsidiaries who use the gift aid rules and consequently pay little or no tax.

Question 2

In relation to the Consultation stage impact assessment do you have any comments on the costs and benefits identified? Please provide evidence to support your views of the quantifiable costs and benefits of these proposals.

We agree with the FRC's comments in relation to the costs and benefits of these proposed amendments to FRS 102 and specifically that the amendments will assist in providing relevant information to users of the accounts and ensure consistency of application.