Defferred tax

Barry Registered Posts: 101 Dedicated contributor 🦉
Defferred tax always confuses me and I have never quite understood the concept. Having discussed it with some colleagues I understand that a defferred tax asset can not be created in the accounts unless there are future profits available to offset it but what about a tax planning opportunity that would create profit by reducing tax liabilities. Can you recognise a defferred asset then?


  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
    I thought you only didn't recognise a DT asset in the case of losses, unless there are imminent future profits.

    I always recognise DT in the case of accelerated capital allowances, losses or no. Need to check whether that's right now!

    If you've got a tax planning op which will just plain reduce tax, then there can be no DT as you haven't deferred it, you've just saved it, full stop.
  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
    You are in "murky waters" here, but if I have read your post correctly you are wanting to create a deferred tax asset because your client may take advantage of a tax planning opportunity which may reduce future expenses or create additional income. As far as "tax planning opportunities" are concerned FRS 19 does cover the issue about tax planning opportunities and specifically at paragraph 25 it does permit a company to create suitable taxable profits by way of a tax planning opportunity. This action will essentially create future taxable profits necessary for the recovery of the deferred tax asset.

    FRS 19 suggests that a tax planning opportunity is "an action that an entity would not normally take, but would do so to prevent, say, an unused tax loss from expiring". Examples include:

    - Accelerating taxable amounts or deferring claims for writing down allowances to recover losses c/fwd (before they expire).
    - Changing the character of taxable or deductible amounts from trading gains/losses to capital gains/losses or vice versa.
    - Switching from tax-free to taxable investments.

    You must be extremely careful though if you are trying to create a deferred tax ASSET through tax planning opportunities. You cannot simply use a tax planning opportunity to create a deferred tax asset or to avoid or reduce a deferred tax liability. You should ensure that the feasibility of the tax planning opportunity is considered carefully based on individual facts and circumstances.
  • Barry
    Barry Registered Posts: 101 Dedicated contributor 🦉
    Thanks for your replies guys. Seems more trouble than it's worth :)
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