Potential impact of application of IFRS16 on tax thresholds

Wed 12 Feb 2020

A brief summary of the UK tax implications of the change of lease accounting under IFRS 16 for lessees is set out in an earlier Mazars tax blog covering the initial consultation on the change.    The main impact from an accounting perspective is to increase the balance sheet assets of a company.  Therefore tax measures which depend on an accounting balance sheet threshold may be affected.  These could include the senior accounting officer rules, tax strategy, off-payroll working in the private sector, EMI, EIS and those based on EU SME size limits (e.g. R&D tax relief, transfer pricing). The notes below give further details on the relevant size limits.

For a further discussion of the tax implications of these changes for your business, please get in touch with a member of the Mazars corporate tax team.

Tax regimes and size limits

• SAO – senor accounting officer rules.  Amongst other things, to be outside the rules the gross aggregate assets of the UK company (or UK company group members) must be <£2bn.
• R&D SME relief is available to companies which fall within double the EU SME thresholds.  With respect to gross balance sheet assets (there are other measures), they must be < €86m.
• Tax Strategy requires the annual online publication of a tax strategy.  One of the measures used to assess whether a company is within this provision is whether it (or its group’s) gross aggregate assets exceed £2bn
• Off-payroll working rules in the private sector will not apply to businesses meeting the Companies Act small company threshold levels.  With respect to gross assets, this means balance sheet assets not exceeding £5.1m
• EMI  – the company granting EMI options (or the group of which it is a member) cannot have balance sheet aggregate gross assets exceeding £30m at the date of grant of the option .
• EIS – The company’s balance sheet assets cannot exceed £15m before and £16m after the share issue for EIS; the equivalent figure for an SEIS company is  £200k immediately before shares are issued.
• Transfer pricing – this applies unless the company/group satisfies the EU SME thresholds, one measure of which is that gross balance sheet assets do not exceed €43m

Despite potentially increasing the accounting value of balance sheet assets representing interests in land, for the purposes of the CGT property richness test (see TCGA 1992 Sch1A part 2), it is the market value of the assets which is relevant, which may be different to the accounting value.