Under FRS 102 Section 29 a company recognises a current tax liability for the corporation tax it owes on taxable profit for the current and past periods, measured at the amount it expects to pay using tax rates and laws enacted or substantively enacted by the year end. The tax charge is presented in the same place as the item that gave rise to it, so tax on profit goes to profit or loss while tax on items recognised in other comprehensive income or directly in equity follows them there. Since 2026 the standard also requires uncertain tax positions to be measured explicitly.

What counts as current tax?

The FRS 102 glossary defines current tax as the amount of income tax payable or refundable on the taxable profit or loss for the current period or past reporting periods. “Income tax” has a wider meaning than the personal tax of the same name: it covers all domestic and foreign taxes based on taxable profits, including withholding taxes payable by a subsidiary, associate or joint venture on distributions to the reporting entity. For a UK company that means corporation tax, plus any foreign tax on profits of overseas branches or withheld on overseas dividends.

Section 29 also covers VAT, but separately: paragraph 29.20 requires turnover to exclude VAT on taxable outputs and expenses to exclude recoverable VAT. VAT is not part of the tax charge. Deferred tax, the other half of Section 29, is covered in deferred tax under FRS 102.

How is the liability recognised and measured?

  • Liability. Paragraph 29.3 requires a current tax liability for tax payable on taxable profit for the current and past periods. If more has been paid than is due, the excess is a current tax asset.
  • Loss carry back. Paragraph 29.4 requires a current tax asset for a tax loss that can be carried back to recover tax paid in an earlier period. Section 37 CTA 2010 lets a company set a trading loss against total profits of the same period and, on a claim, of the previous 12 months.
  • Rates and law. Paragraph 29.5 measures current tax at the amount expected to be paid or recovered using rates and laws enacted or substantively enacted by the reporting date. The glossary treats a UK rate as substantively enacted once it is in a Bill passed by the House of Commons and awaiting only the Lords and Royal Assent, or in a resolution under the Provisional Collection of Taxes Act 1968.
  • No discounting. Paragraph 29.17 prohibits discounting current or deferred tax.

Which corporation tax rate applies?

GOV.UK gives the main rate as 25% for profits over £250,000 and the small profits rate as 19% for profits of £50,000 or less, with marginal relief in between. Both thresholds are reduced proportionately for short accounting periods and by the number of associated companies. Where an accounting period spans two financial years with different rates, the tax is worked out for the days falling under each rate. The calculation for companies in the band is explained in marginal relief.

For current tax the company uses its actual expected computation for the period, not an average rate. That contrasts with deferred tax, where paragraph 29.13 requires the average rate expected to apply when timing differences reverse.

Where does the tax charge go: profit or loss, other comprehensive income or equity?

Paragraph 29.21 presents changes in current and deferred tax as tax expense or income. Paragraph 29.22 then puts that tax in the same component of total comprehensive income or equity as the transaction that caused it. In practice:

  • Tax on trading profit, interest and most gains goes to profit or loss.
  • Tax arising on an item recognised in other comprehensive income is shown in other comprehensive income.
  • Tax on an item taken directly to equity goes to equity. Paragraph 22.9, for example, deducts the costs of issuing shares from equity and says any income tax on those costs is accounted for under Section 29, so it follows them into equity.
  • Tax relating to a change in accounting policy or correction of a material error is part of the adjustment, and paragraph 29.26(f) requires it to be disclosed as a component of tax.

Paragraph 29.22A is an exception: the tax effects of distributions to owners go to profit or loss even though the distribution itself is recognised in equity. Paragraph 29.14A gives a further exception for a company wholly owned by charities, which recognises the tax effect of a gift aid payment it expects to make within nine months of the year end.

How are uncertain tax positions handled?

The Periodic Review 2024 amendments added paragraphs 29.17A to 29.17C, which apply for accounting periods beginning on or after 1 January 2026. The glossary defines an uncertain tax treatment as one where it is uncertain whether HMRC or another tax authority will accept it, for example one based on an interpretation of the law that differs from the authority’s known view.

The company must assume the authority will examine the position with full knowledge of the facts (29.17B). If acceptance is probable, the tax is measured on the filing position. If not, the uncertainty is reflected using either the single most likely amount or the probability weighted expected value, whichever better predicts the outcome. New information is a change in accounting estimate (29.17C). Paragraph 1.68 allows first application either fully retrospectively without hindsight, or with the cumulative effect taken to opening retained earnings and no restatement of comparatives. See FRS 102 2026 amendments.

What does the year end calculation look like?

Illustration only. A company with a 31 March 2027 year end, no associated companies and a 12 month period has accounting profit before tax of £280,000. It spent £20,000 on client entertaining, which GOV.UK lists as a specifically disallowed expense. Ignoring capital allowances, taxable profit is £300,000, above the upper threshold, so tax is 25%.

Item £
Current tax on taxable profit of £300,000 at 25% 75,000
Over provision for the previous year (3,000)
Current tax charge in profit or loss 72,000

For the paragraph 29.27(b) reconciliation, profit before tax of £280,000 at 25% gives £70,000. The reconciling items are £5,000 for the disallowed entertaining and £3,000 for the prior year adjustment, giving £72,000. Paragraph 29.26 requires the major components of the tax charge to be disclosed separately and lists adjustments for current tax of prior periods as one of them.

With taxable profits below £1.5 million, GOV.UK says the tax is due 9 months and 1 day after the end of the accounting period, so the £75,000 sits in creditors due within one year. Companies with taxable profits above £1.5 million pay by instalments, which often leaves a current tax asset or a much smaller liability at the year end. Dates are listed in corporation tax deadlines.

When can tax balances be offset, and what about groups?

Paragraph 29.24 allows current tax assets and liabilities to be offset only where there is a legally enforceable right of set off and an intention to settle net or simultaneously. A refund due to one group company cannot be netted against another company’s liability in the group accounts unless both conditions are met.

Within groups, losses are often moved by group relief, with the claimant paying the surrendering company for the losses. Section 183 CTA 2010 says such a payment, up to the amount of the losses, is ignored in computing the profits or losses of either company for corporation tax and is not a distribution. Each company’s current tax is still based on its own computation after the surrender, so both companies’ accounts need to reflect the agreed claims and any payment due between them.

What are the common mistakes?

  • Using a rate announced in a Budget but not yet substantively enacted at the year end.
  • Forgetting to adjust thresholds for associated companies or a short period.
  • Taking tax on items recognised in other comprehensive income or equity to profit or loss.
  • Including interest or penalties on late paid tax in the tax charge, when they are not taxes based on taxable profits within the glossary definition of income tax.
  • Netting a group company’s refund against another’s liability without a legal right of set off.
  • Not recording a loss carry back claim as a current tax asset.
  • Ignoring a known disagreement with HMRC instead of measuring it under paragraphs 29.17A to 29.17C.
  • Presenting an R&D expenditure credit in the tax line; see accounting for R&D tax credits.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.