Deferred Tax Under FRS 102: How It Differs From IAS 12

Deferred tax is one of the more conceptually challenging areas of financial reporting, and the way it's approached differs between IAS 12 (under IFRS) and FRS 102 (the UK and Ireland standard). Understanding these differences matters for accountants who work across both frameworks. This guide explains what deferred tax is, the different approaches taken by IAS 12 and FRS 102, and the practical implications — in clear, plain language. Always check the current text of both standards, as they are updated over time. For related reading, see our ACCA FR guide.

What is deferred tax?

Deferred tax arises because the way items are treated for accounting purposes often differs from the way they're treated for tax purposes. These differences mean that the tax an entity will pay in future may not match the tax implied by its current accounting profit. Deferred tax is the mechanism that reflects the future tax consequences of these differences in the financial statements — recognising a deferred tax liability (future tax payable) or asset (future tax recoverable) so that the accounts give a more complete picture. Both IAS 12 and FRS 102 require deferred tax to be accounted for, but they get there in conceptually different ways.

The IAS 12 approach: temporary differences

IAS 12, under IFRS, uses a temporary difference approach, sometimes called a balance sheet approach. It focuses on differences between the carrying amount of an asset or liability in the financial statements and its tax base (its value for tax purposes). Where these differ, a temporary difference arises, and deferred tax is generally recognised on it. This balance-sheet-focused method captures a broad range of differences, including some that a purely income-based approach might not. It's a comprehensive approach that ties deferred tax to the difference between accounting and tax values of assets and liabilities.

The FRS 102 approach: timing differences

FRS 102 uses a timing difference approach (more precisely, a "timing differences plus" approach). Timing differences are differences between taxable profits and accounting profits that arise because items are included in tax and accounting in different periods. This is an income-statement-oriented way of looking at the issue — focusing on when income and expenses are recognised for accounting versus tax. FRS 102 then adds certain specific requirements (the "plus") to capture some differences that the basic timing-difference approach wouldn't, bringing it closer to IAS 12 in some respects, though the underlying conceptual starting point is different.

Do the approaches give different answers?

In many common situations, the two approaches produce broadly similar results, because many differences are captured under both. However, because the conceptual starting points differ — temporary differences (balance sheet) under IAS 12 versus timing differences (income statement) under FRS 102 — there are situations where the outcomes can differ. Certain differences may be recognised under one approach but not the other, particularly in more complex areas such as some revaluations or business combinations. So while the everyday effect is often similar, accountants working across both frameworks need to be alert to the cases where the treatment, and the resulting deferred tax, can genuinely differ.

Why the differences matter

These differences matter for accountants who prepare or work with financial statements under both IFRS and FRS 102, or who move between them. Understanding that the two standards approach deferred tax from different conceptual angles — and knowing where that can lead to different outcomes — helps ensure deferred tax is accounted for correctly under the relevant framework. It also matters when comparing or converting figures between the two. As always, this is a general overview: the detailed requirements are in the standards themselves, which should be consulted for specific situations, and which are subject to change over time. For complex cases, specialist advice may be appropriate.

Frequently asked questions

What is deferred tax?

The mechanism that reflects the future tax consequences of differences between the accounting and tax treatment of items, recognising a deferred tax liability or asset in the financial statements.

How does IAS 12 approach deferred tax?

Using a temporary difference (balance sheet) approach — focusing on differences between the carrying amount of assets and liabilities and their tax base.

How does FRS 102 approach deferred tax?

Using a timing difference ("timing differences plus") approach — focusing on differences arising because items are recognised for tax and accounting in different periods, with certain additional requirements.

Do the two approaches give different results?

Often broadly similar, but because the conceptual starting points differ, there are situations — such as some revaluations or business combinations — where the outcomes can genuinely differ.

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