The Financial Reporting Council (FRC) has published FRED 68, a set of draft amendments to FRS 102 regarding payments by subsidiaries to their charitable parents that qualify for gift aid. The amendments intend to clarify when profits from a non-charitable subsidiary can be distributed to the parent charity.

These draft amendments propose that the tax effects of Gift Aid payments to charitable parents (which are, effectively, tax relief), when it is probable that it will be made in the nine months following the reporting date, shall be taken into account at the reporting date. Such payments are a distribution to owners but a donation for tax purposes.  This should improve the consistency of reporting between entities and the relevance of the information provided to users.

There are currently significant differences in the accounting treatment used in practice relating to the accounting for Gift Aid payments made by a subsidiary to its charitable parent. Changes will ensure that charitable entities, including registered providers of social housing and higher educational institutions, can benefit from corporation tax relief provisions. As these distributions are considered as a form of distribution to owners, the subsidiary will have taxable profits and needs to recognise this as a tax expense.

The FRC expects to finalise these proposals with those in FRED 67, and their proposed effective date is accounting periods beginning on or after 1 January 2019, with early application permitted provided all of the amendments are applied at the same time.

CTG submitted a short response to the consultation which closed on 20 October 2017

FRED 68 Draft amendments to FRS102 – Charity Tax Group comments

*Update – December 2017*

When FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland was issued in March 2013, the FRC indicated that it would be reviewed every three years, although the first review was subsequently delayed for one year.

As part of the first triennial review, the FRC issued FRED 67 Draft amendments to FRS 102 – Triennial
Review 2017 – Incremental improvements and clarifications in March 2017, and FRED 68 Draft amendments to FRS 102 – Payments by subsidiaries to their charitable parents that qualify for gift aid in September 2017, setting out draft amendments to FRS 102.

The FRC has now published a Feedback Statement summarising the 35 responses received to FRED 67 and 29 responses to FRED 68 and the FRC’s response to them.