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Offshore Bonds: ‘smaller companies’

High level summary of FRSSE change coming into effect on 1 Jan 2016.

Background

Currently companies which are able to report under the Financial Reporting Standard for Smaller Entities (FRSSE) can use an accounting method ‘historic cost basis’. This means for example if the company invests into an offshore bond say with a premium value of £100,000 regardless of a growth (or loss) no tax is paid on a year on year basis but only on realisation i.e. withdrawal in part or full.

From 1 January 2016 the FRSSE will be withdrawn and replaced with a ‘small companies regime’ in FRS 102.  In addition a new ‘micro-entity’ regime is being introduced under FRS 105.

What is changing?

Small companies that meet the definition for the micro-entity regime under FRS105 will still be able to claim the historic basis.

However small companies who are too large to meet the criteria of a micro-entity and choose to invest into an offshore bond (and the bond does not meet the criteria to be a ‘basic financial instrument’ – which is very unlikely) will need to account on a ‘fair value’ basis.  Any increase in value year on year on an offshore bond will be subject to taxation.

How will we know what basis a company is taxed on?

The Company Accountant will be able to confirm this. 

Summary

This is a very complex subject and we have provided only a high level summary.  For more detail please see our document on Knowledge Direct entitled ‘Important date for corporate investors'.

For financial advisers only. Not to be relied on by consumers.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth or Old Mutual International's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. We cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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