2.5 By the late 1990’s the climate had altered markedly: inflation had reduced very considerably and the regime of greatly accelerated capital allowances had been largely dismantled. The front-end loading of the tax allowances was therefore far less prevalent than previously. These conditions provided the backdrop for Financial Reporting Standard 19 which was introduced in December 2000. This standard requires full provisions to be made for deferred tax. It also introduced the facility for deferred tax balances to be both net liabilities and net assets.
2.6 There are still three areas of choice or subjectivity that exist within FRS 19, but their impact is now very much reduced, as they do not affect the core of the Standard:
2.6.1 there is a choice as to whether or not to discount the components of the deferred tax account for the time value of money This may be appropriate when dealing with very long-life assets. Apart from this, discounting is unlikely to be material; 2.6.2 the second area of subjectivity is in respect of tax which may be deferred by rollover relief, depending on future plans. Provision should not be made for deferred tax which is to be deferred by rollover relief; 2.6.3 if there is a deferred tax asset it should be recognised if it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. 2.7 Evidence of the lack of subjectivity is given by the opening paragraph of FRS 19 which states: “Financial Reporting Standard 19 “Deferred Tax” requires full provision to be made for deferred tax assets and liabilities arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation.” 2.8 In the examples given above of Rickinghall Printers Limited and Hauleigh Horsegear Limited there are no subjectivities involved: the composition of the deferred tax account is determined by the underlying facts; it is not coloured by any judgements. 2.9 IAS 12 has a very similar structure to FRS 19. There is one main area of difference and that is that IAS 12 gives itself a wider scope. IAS 12 requires that tax is provided on the uplift in value of fixed assets which have been revalued, whereas this is not permitted under FRS 19. There is also a slight difference in the terminology which reflects this different approach: FRS 19 refers to “timing differences”, whereas IAS 12 uses the phrase “temporary differences” as it seeks to embrace all differences between the carrying amount of assets and liabilities and their tax base. 2.10 Under IAS 12 the viewpoint from which deferred tax is surveyed is the balance sheet: if a property is revalued this creates a temporary difference: a temporary difference is a difference between the carrying amount of an asset or liability and its respective tax base. Under IAS 12 there is a requirement that a provision for deferred tax is made in respect of that valuation difference.
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