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HMRC internal manual

International Manual

Thin capitalisation: practical guidance: accountancy issues: FRS17: retirement benefits - impact of current service costs

Current service cost

The current service cost is an expense which is recognised because an employee has worked an extra year and is therefore entitled to a greater pension.

As noted in INTM523250, for entities applying FRS 17 this expense is recognised in operating profit in the profit and loss account in the current period. For entities applying one of IAS 19, revised IAS 19 (through adoption of IFRS or through FRS 101) or FRS 102, the current service cost is recognised in the income statement, though there is no particular requirement to recognise this expense in any particular place.

Treatment for thin capitalisation purposes

The current service cost is a recurring cost for an entity providing pensions to current employees. As such, it is appropriate to include this expense when arriving at the operating profit and cash flow measures used for thin capitalisation purposes. No adjustment is normally therefore required to the operating profit as shown in the statutory accounts in respect of this expense.