Deferred Taxation

BIG WALBIG WAL Well-KnownPosts: 133Registered
I do the books for a small incorporated business, and the accountant sends me the final accounts. For the first time he has included an amount for Deferred Taxation on the balance sheet.

Can anyone explain explain why this might be, as the accounts are pretty straight forward, and the CT works out spot on ?


  • BluewednesdayBluewednesday Font Of All Knowledge Posts: 1,624Registered
    Accounting standards say that you must provide for deferred taxation if it is material.

    We generally provide for it too unless it's such a small amount as to be not worth it although we always have the fun of explaining to the client what it actually means!!!
  • slackdaslackda Trusted Regular Posts: 460Registered
    What is deferred tax?
    Deferred tax is a provision in your reported profit/loss to remedy a difference between your statutory accounts and your tax accounts. This difference most commonly occurs when expenditure which is fully tax deductible gets deducted in one period for statutory accounts and another for tax purposes. Accountants call this anomaly “timing differences”.

    When do timing differences occur?
    One of the best-known examples is on 100 per cent write-offs of capital expenditure. This happened until recently with a small company’s expenditure on computer equipment. For tax purposes 100 per cent was allowed to be deducted from the tax profits total, whereas a company’s policy might be to write off computer equipment over, for example, four years. The effect of this is that in the accounting period in which the expenditure is deducted for tax purposes, the tax liability is artificially reduced, compared to the tax liability that would be assessed if accounts profits were the tax base.

    Extract from , puts in nice words man i hate trying to explain deferred tax to people.

    It is topic covered by the AAT Tax Module No offence to be meant by this comment i assume that you didn't
    take that particular paper?
  • Steve CollingsSteve Collings Experienced Mentor Posts: 997Registered
    I published an article recently on Deferred Tax which you might find helpful. Provisions should be made for deferred tax where these balances are considered material.

    Kind regards
  • BIG WALBIG WAL Well-Known Posts: 133Registered
    Thank you all for your help and explanations. Slackda is right -as I recall we didn't even cover tax when I took AAT.
  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    I don't remember ever looking at deferred taxation and I took both tax modules.

    Thanks for the links Slackda and Steve :D
  • Steve CollingsSteve Collings Experienced Mentor Posts: 997Registered
    The concept of deferred taxation is more a financial reporting issue as opposed to a taxation issue, hence why contributors are saying they never met the concept during their AAT taxation paper studies. You should have met such a concept when studying DFS - though admittedly at only introductory level (detailed calculations of deferred tax being outside the scope of DFS syllabus) but I would not expect deferred taxation to appear in any business/personal taxation paper at AAT level, or indeed at chartered levels.

    Kind regards

  • slackdaslackda Trusted Regular Posts: 460Registered
    Hi Steve,

    Im sure we covered it in the business tax papers but as you said it may have been DFS, wether it was exam'd is another question, it also forms part of the Old CIMA Managerial Syllabus, i remember that as the CIMA certificate students in the lesson didn't have a clue at what the tutor was talking about. Again this wasn't in great detail but basic calcs and the concept.


  • MonsoonMonsoon Font Of All Knowledge Posts: 4,071FMAAT, AAT Licensed Accountant
    It came up in my ATT exam (Business Tax and Accounting Principles - which I didn't have to take due to being AAT qualified! Do'h!) and I didn't have a clue what it was (much less, how to calculate it). I answered the rest of the question perfectly and made a note that I'd deliberately omitted the deferred taxation as I didn't have a clue. I still passed. Phew.

    I have since read up on it...!

    This was one of the reasons I felt compelled to look into ATT as I feel the Business Tax module is not adequate for anything more than basic general practice.
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