IAS 12 starts from the balance sheet: deferred tax is recognised on temporary differences between the carrying amount of each asset or liability and its tax base. FRS 102 starts from profit: deferred tax is recognised on timing differences between taxable profit and accounting income, plus a short list of extra items such as revaluations and business combination fair values. The FRC designed the FRS 102 approach to give the same answer as IFRS in most cases, so the differences sit in a handful of specific situations.
What is the starting point under each standard?
IAS 12 paragraph 5 defines temporary differences as differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. The tax base of an asset is the amount that will be deductible for tax when the entity recovers its carrying amount (paragraph 7). The standard’s own example is a machine that cost 100 on which tax depreciation of 30 has been claimed: its tax base is 70. Paragraph 15 then requires a deferred tax liability for all taxable temporary differences, subject to listed exceptions.
FRS 102 paragraph 29.6 requires deferred tax on all timing differences, defined as differences between taxable profits and total comprehensive income that arise because income and expenses are included in tax assessments in different periods from those in which they are recognised in the accounts. Paragraph 29.10 says deferred tax is not recognised on permanent differences, such as disallowable expenses, except in business combinations.
The two ideas overlap heavily. IAS 12 paragraph 17 itself describes temporary differences arising from income or expense being taxed in a different period as timing differences. The FRC explains in the FRS 102 Basis for Conclusions (paragraph B29.2) that it chose a timing differences plus approach because it was close to previous UK practice and would give the same answers as IFRS in most cases. Our guide to FRS 102 Section 29 covers the UK GAAP mechanics in more detail.
What are the plus items in FRS 102?
A pure timing difference approach would miss some balances that IAS 12 captures. FRS 102 adds them back explicitly:
- Revaluations. Gains and losses on revaluation are treated as timing differences (B29.3). Deferred tax on a revalued non depreciable asset is measured at the rates and allowances that apply on sale (29.15), and investment property at fair value is treated the same way unless it has a limited useful life and is held to consume its benefits (29.16). IAS 12 paragraphs 51B and 51C reach the same position. See deferred tax on revaluations.
- Business combinations. Paragraph 29.11 requires deferred tax on the difference between the value at which an acquired asset or liability (other than goodwill) is recognised and its tax base, with goodwill adjusted. B29.6 says this was added to maintain consistency with IAS 12.
- Subsidiaries, associates, branches and joint ventures. Paragraph 29.9 requires deferred tax on income from these investees that will be taxed later, such as undistributed profits, unless the reporting entity controls the reversal and it is probable it will not reverse in the foreseeable future. IAS 12 paragraph 39 uses the same two conditions.
Where do the answers actually differ?
The FRC lists the main gaps in B29.7 and says in B29.8 that it expects them to be relatively rare. They are:
- Share based payment deductions that exceed the expense. Where the expected tax deduction for share options exceeds the cumulative remuneration expense, IAS 12 paragraph 68C recognises deferred tax on the whole deduction, with the excess taken directly to equity. FRS 102 does not recognise deferred tax on the excess.
- Changes to an asset’s tax base. B29.7(b) notes that FRS 102 may not recognise deferred tax in some cases where legislation changes the future tax relief available for an asset. Under IAS 12 the tax base changes and so does the temporary difference.
Other differences are of route rather than result. IAS 12 needs an initial recognition exemption (paragraphs 15(b) and 24) so that, for example, buying an asset whose cost will never be deductible does not create deferred tax. FRS 102 has no such exemption because no timing difference arises in the first place (B29.5). Since the 2021 amendments, effective for periods beginning on or after 1 January 2023 (paragraph 98J), the IAS 12 exemption does not apply where a transaction creates equal taxable and deductible temporary differences, such as a lessee recognising a lease liability and right of use asset (paragraph 22A). Neither standard recognises a deferred tax liability on the initial recognition of goodwill (IAS 12 paragraph 15(a); FRS 102 paragraph 29.11 excludes goodwill).
What stays the same?
| Rule | IAS 12 | FRS 102 |
|---|---|---|
| Rate | Enacted or substantively enacted rates expected to apply on reversal (47) | Same (29.12); see which rate to use |
| Discounting | Not allowed (53) | Not allowed (29.17) |
| Deferred tax assets | Only to the extent probable; unused losses are strong evidence future profits may not arise (24, 34, 35) | Only to the extent probable; the existence of unrelieved losses is strong evidence against (29.7) |
| Manner of recovery | Reflects how the entity expects to recover or settle (51) | Same for business combination items (29.11A) |
| Pillar Two top up taxes | No deferred tax recognised or disclosed (4A) | Same (29.2B and 29.12A) |
| Offsetting | Legally enforceable right and same authority (74) | Same conditions (29.24A) |
What does a worked comparison look like?
Illustration only. A company pays tax at the 25% main rate, which HMRC’s rates table shows for financial years 2023 to 2026.
- Plant. It buys plant for £100,000, claims capital allowances of £100,000 in year one and depreciates the plant over five years. At the end of year one, FRS 102 sees a timing difference of £80,000 (allowances of £100,000 less depreciation of £20,000). IAS 12 sees a carrying amount of £80,000 against a tax base of nil. Both give a deferred tax liability of £20,000.
- Acquisition. It buys the shares of a target and recognises a customer list at £400,000 on consolidation, with no tax deductions available for it. Under IAS 12 this is a taxable temporary difference recognised in the business combination (paragraph 66); under FRS 102 it is not a timing difference but paragraph 29.11 requires deferred tax anyway. Both record a liability of £100,000 and increase goodwill by the same amount.
- Share options. The cumulative share option expense is £40,000 but the estimated future tax deduction, based on the year end share price, is £100,000. Under IAS 12 a deferred tax asset of £25,000 is recognised if recoverable, with £10,000 in profit or loss and the £15,000 excess in equity. Under FRS 102 the excess is not recognised.
How do the disclosures differ?
Both standards require a reconciliation of the tax charge. IAS 12 paragraph 81(c) allows either a reconciliation of tax expense to accounting profit multiplied by the applicable rate, or of the average effective rate to the applicable rate. FRS 102 paragraph 29.27(b) requires the first form, using profit or loss on ordinary activities before tax.
FRS 102 has a disclosure IAS 12 does not: the net reversal of deferred tax expected in the year after the reporting period, with a brief explanation (29.27(c)). IAS 12 asks for more on what has not been recognised, including unrecognised deductible temporary differences and losses (81(e)), unrecognised temporary differences on investments in subsidiaries (81(f)), and, under paragraph 82, the evidence supporting a deferred tax asset where the entity has made a recent loss. On the balance sheet, FRS 102 paragraph 29.23 places deferred tax liabilities within provisions and deferred tax assets within debtors unless adapted formats are used. Our guide to deferred tax assets for losses covers the recognition judgement in practice.
Why does this come up in UK groups?
Many UK groups prepare IFRS consolidated accounts while their subsidiaries report under FRS 102. Each subsidiary’s deferred tax then has to be checked on consolidation rather than assumed to match, particularly for share schemes, assets whose tax treatment has changed, and fair value adjustments made only at group level. The same review is needed when a company moves between frameworks, a point covered in our wider comparison of IFRS and FRS 102.
What mistakes come up most often?
- Treating every permanent difference as giving no deferred tax under FRS 102, and so missing the business combination rule in 29.11.
- Applying the IAS 12 initial recognition exemption to leases or decommissioning balances that create equal and offsetting differences.
- Recognising deferred tax on goodwill on initial recognition under either standard.
- Taking the full share option deferred tax credit to profit or loss under IAS 12 instead of sending the excess to equity.
- Using a rate that has been announced but not substantively enacted at the reporting date.
- Omitting the FRS 102 disclosure of expected reversals in the following year.
Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.
Related Accountapedia entries
- Deferred tax on leases after the 2026 changes
- Deferred tax and full expensing
- Why micro entities do not show deferred tax
- Pillar Two top up taxes in the accounts
- Accounting for current tax
Sources
- IFRS Foundation: Ias12
- Financial Reporting Council: FRS 102 September 2024 tmKYWO6
- GOV.UK: Rates and allowances corporation tax
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.