Defined benefit pension scheme changes: accounting implications

Changes to free-standing tax charge applying to authorised surplus payments announced at the Autumn Statement now ‘substantively enacted’

Autumn Statement changes ‘substantively enacted’

At the Autumn Statement it was announced that, from 6 April 2024, the free-standing tax charge that applies to authorised surplus payments to sponsoring employers of a registered defined benefit pension scheme will reduce from 35 percent to 25 percent. As a consequence, companies which have previously been using the 35 percent rate in their financial statements to measure any deferred tax arising on their pension surplus need to consider the tax accounting impact of this change from both a disclosure and quantum perspective. It was announced that this measure would be legislated for via secondary legislation and the Statutory Instrument bringing it into effect has now been laid, on 11 March 2024. The change in rate is therefore considered ‘substantively enacted’ for UK GAAP and IFRS purposes.

The Authorised Surplus Payments Charge (Variation of Rate) Order 2024 is the Statutory Instrument which brings in the change in rate of the authorised surplus payments charge from 35 percent to 25 percent and it comes into force on 6 April 2024. However, because it was laid before the House of Commons on 11 March 2024, it is considered ‘substantively enacted’ under IAS 12/FRS 102 from that date.

From a practical perspective, this means that companies should use the new lower rate of 25 percent for deferred tax calculations for quarter (or year) ended 31 March 2024 reporting purposes.

If you have any questions about the impact of this change, please speak to the authors of this article or your usual KPMG in the UK contact.