a Background

Advance corporation tax was abolished with effect from 6 April 1999. Large companies with taxable profits of at least 1,500,000 moved over to payment of tax on a quarterly instalments basis.

Small and medium-sized companies below this size pay the year's tax liability nine months after the year-end. Special tax rates, including marginal relief apply to these companies.

Following changes in the tax system, FRS 16, Current taxation, was issued.

b Current Taxation

Current tax should be recognized in the profit and loss account for the period, except to the extent that it is attributable to a gain or loss that is, or has been, recognized in the statement of total recognized gains and losses (STRGL). This exception could relate to the tax effect of a change in accounting policy, dealt with as a prior period adjustment.

c Gains and Losses Recognized in STRGL

Accounting Standards and/or CA 1985 require or permit certain gains or losses to be credited or charged direct to the STRGL.

Tax attributable to gains and losses recognized in the STRGL should itself be recognized in the STRGL. In exceptional cases, it may be difficult to determine the amount of such attributable tax. FRS 16 permits the attributable tax to be based on a reasonable pro rata allocation, or another allocation that is more appropriate in the circumstances.

d Outgoing Dividends and Interest

Outgoing dividends paid and proposed (or declared and not yet payable), interest and other amounts payable...