Increased tax accounting disclosure requirements for small companies

Changes made to FRS 102 by the Financial Reporting Council following the Periodic Review in 2024 mean that small companies must include significant additional tax disclosure in their financial statements for periods starting on or after 1 January 2026.

Major components of tax charge or credit

Previously, small companies were not required to split out their overall tax charge or credit for the year, with most simply leaving it as a single line in the income statement. Now, small companies will have to separately disclose the ‘major components’ of the tax charge. These may include (but are not necessarily limited to):

• tax expense or income arising on current year profits;
• adjustments made in respect of tax in prior periods (sometimes known as ‘true-ups’);
• current year movement on deferred tax; and
• deferred tax movements due to changes in tax rates.

Tax reconciliation

Small companies now have to provide an explanation of the difference between the actual tax charge or credit included in profit or loss, and the tax charge or credit that would have arisen based on PBT multiplied by the prevailing corporation tax rate. This is usually referred to as the tax reconciliation or ‘proof of tax’ and it requires a company to investigate and explain the key permanent book-to-tax differences that drive its effective tax rate.

This may be a similar exercise to the calculation of its estimated tax charge for the year, but there will be tax adjustments that are not reconciling items (due to the impact of deferred tax), and there are likely to be other adjustments that are not derived from the current year tax calculation. As a result, this can be a tricky requirement and is an area that companies often get wrong.

Deferred tax

Small companies will have to provide a breakdown of deferred tax assets and/or liabilities at the end of a reporting period, split by the type of timing differences. Previously, these amounts should have been included on the balance sheet, but no further detail was required.

Companies will also have to separately disclose the amount of carried forward tax losses, even if deferred tax has not been provided on those losses.

Prior year comparatives

Although the new rules only apply to accounting periods starting on or after 1 January 2026, companies will need to include prior year comparative figures. This means that they will have to retrospectively apply them to at least one earlier period also.

How we can help

At Moore Kingston Smith, our highly experienced tax accounting team can help you prepare for such vital changes as disclosure of separate elements of the tax charge, preparation of tax reconciliations and identification of deferred assets and/or liabilities.

Contact us for a no-obligation discussion.