The Retailer Winter 2018/19

Retailers will need to understand both the ‘current tax’ and ‘deferred tax’ effects that will impact the cash tax and financial reporting position of the business

Getting it wrong could have significant implications ranging from HMRC enquires and penalties, to misstated accounts and reputational damage

3. Capital allowances - where certain leases meet qualifying tests, the lessees (rather than the lessors) are entitled to capital allowances (i.e. tax relief on investment in plant and machinery) known as “long funding leases”. There have been changes to the classification of leases, the qualifying tests which need to be observed for new leases. Again, this places additional burden on property teams to have good grasp on current lease portfolios, and the impact of the incoming changes. How can this affect your business? Commercial agreements – the accounting treatment will have a knock on effect on the tax consequences and EBITDA as a performance metric impacting, for example, lending covenants. Different accounting options could have differing (and significant) cash tax and deferred tax impacts which should be modelled as part of an impact assessment. Compliance – the accounting and tax treatment is likely to differ, resulting in them needing to be tracked separately. The impact of any restrictions on actual and deemed finance costs will also need to be considered. HMRC scrutiny – it is likely HMRC will scrutinise instances where there has been a significant change in accounting policy, and any disparity in tax treatment where there is a choice in accounting frameworks, creating potential risks that need to be closely managed. So, what are you practical next steps? Doing an impact assessment now will be key to understand and manage the impact on your business. It is recommended you seek professional advice to navigate the complexities – specifically with regard to the tax treatment of transitional adjustments and any interest restriction workings – for reporting and filing purposes. Getting the knowledge transfer now will be key to managing the transition and the ongoing requirements.

Emma Thomas // emma.thomas@uk.gt.com // grantthornton.co.uk

the retailer | winter 2019 | 27