Offshore Bonds: ‘smaller companies’
High level summary of FRSSE that came into effect on 1 Jan 2016.
Companies which were able to report under the Financial Reporting Standard for Smaller Entities (FRSSE) were able to use an accounting method ‘historic cost basis’. This meant for example if the company invested into an offshore bond say with a premium value of £100,000 regardless of a growth (or loss) no tax was paid on a year on year basis but only on realisation i.e. withdrawal in part or full.
From 1 January 2016 the FRSSE was withdrawn and replaced with a ‘small companies regime’ in FRS 102. In addition a new ‘micro-entity’ regime was introduced under FRS 105.
Small companies that meet the definition for the micro-entity regime under FRS105 are still 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) 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 you know what basis a company is taxed on?
The Company Accountant will be able to confirm this.
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 on the title page. 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.