additional commentary in relation to non-interest bearing loans
updated commentary on the application of the Disregard Regulations and Change of Accounting Practice Regulations, reflecting the changes made to these statutory instruments in December 2014
accounting commentary updated to reflect the amendments to FRS 102 issued in August 2014 and July 2015
where applicable, it has been updated for any commentary specific to section 1A of FRS102.
The Draft guidance: corporation tax treatment of interest-free loans and other non-market loans has useful examples highlighting the treatment of restated loans and finance costs. For an interest free loan from a shareholder it shows how the accounting treatment applies for tax purposes. It states:
‘A shareholder lends £100,000 to B Ltd, a UK company, on 1 January 2014. The loan is interest free and is repayable on 1 January 2019. It is assessed the market rate at which the company can borrow is 10% per annum.
Accounting by B Ltd – year ended 31 December 2014 (applies Old UK GAAP) Dr Cash (balance sheet) £100,000 Cr Loan liability (balance sheet) £100,000. No amounts are recognised to profit or loss in the accounts. No amounts are therefore brought into account for tax.
Restatement on transition to New UK GAAP Dr Loan liability (balance sheet) £31,699 Cr Retained earnings (equity) £31,699 The restated value of the loan liability is therefore (as at 1/1/15) £68,301 Accounting by B Ltd - year ended 31 December 2015 (applies New UK GAAP) Dr Finance expense (P&L) £6,830 Cr Loan liability (balance sheet) £6,830
Tax analysis: A transitional adjustment of £31,699, a credit, being the difference between the £100,000 previously recorded and the new carrying value of £68,301, will be brought into account by B Ltd over 10 years (£3,170 each year). In 2015, B Ltd will bring into account a net debit of £3,660 (finance expense of £6,830 less transitional credit of £3,170).’