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Deferred Tax

Deferred Tax

I have an inherited client with a deferred tax asset, being the tax off-set on accumulated tax losses.

 I know what I think but was just seeking other views on this -  I won't post my opinion so as to not prejudice responses!

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29th Dec 2011 14:16

And your question is ... what exactly?

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By Old Greying Accountant
legerman
29th Dec 2011 14:45

Oh Dear!

Euan MacLennan wrote:

Taxhound got it, it is an open request for views on the topic, to interpret as you wish!

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29th Dec 2011 14:23

I would only create an asset

I would only include a deferred tax asset if there was more or less certainty that the losses would be utilised against profits.  For me, this would have to mean that when I prepared the annual accounts, events since the year end show that a profit is highly likely in the following accounting period.

Otherwise, no asset.

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By Old Greying Accountant
cheekychappy
29th Dec 2011 14:58

So ...

taxhound wrote:

I would only include a deferred tax asset if there was more or less certainty that the losses would be utilised against profits.  For me, this would have to mean that when I prepared the annual accounts, events since the year end show that a profit is highly likely in the following accounting period.

Otherwise, no asset.

Given there has been an historical asset shown of @£6k for donkeys' would you reverse this? results are up and down, 2007 was a reasonable profit, 2008 and 2009 around b/e, 2010 modest loss, 2011 still a loss but about 80% of 2010's loss.

The loss is funded by the director's loan, my inclination is to clear out the DT provision whilst there is scope to do so as in the current climate showing dubious assets is not a good thing!

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Glennzy
29th Dec 2011 18:52

I would reverse to the extent that......

The balance at the year end is in line with actual CT losses carried forward at the prevailing rate. - and if you choose to - discount by all means.

Some may argue this is dubious - as you say - BUT - and this was explained to me at far greater length on a CPD lecture a year or two ago - if you are saying that the company is not going to make sufficient profits in the future so as to utilise the accumulated tax losses then you should consider very strongly the gravitas placed on the going concern disclosures in the accounts

Namely - if the company is not going to use these losses in the forseeable future som strong going concern wording should be added.

I won't try and recall chapter and verse of the explainations and examples as I said it was in a course but it makes perfect sense to me.

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By Old Greying Accountant
29th Dec 2011 20:59

Thanks

If the directors loan is removed from the equation the company is solvent, a big part of the loss arises from directors remuneration and expenses (use of home and interest on the loan) and without these would be showing a profit of around £6k.

I always carry a subordination note in these cases and get the client to sign a separate formal letter of subordination, specifying the balance subordinated.

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