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Taxation & DT disclosure

Hi Everyone,

I have a client (small Ltd Co) who has made a trading loss (after deduction of AIA) in their first year of £11,016. Due to the AIA claim I have calculated a Deferred Tax Liability of £524, (NBV £2621 tax WDV £0).

Is the following disclosure in the accounts sufficient:- (FRSSE 2008)

Taxation on Ordinary Activities - There is no charge to corporation tax on the losses arising in the year.  The company has losses amounting to £11,016, not adjusted on the deferred tax accoun, whcih are available to offset against future trading profits.

Deferred Taxation - The elements of deferred taxation, which result in a nil balance at the end of the year are as follows:-

Excess of taxation allowances over depreciation on fixed assets                                                               £524

Tax losses available                                                                                                                                   (£524)

                                                                                                                                                                   _____

                                                                                                                                                                       -

                                                                                                                                                                   _____

Thanks

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Why are you not recognising a deferred tax asset on the losses.  Is their doubt over the future profitability of the company?  If so, I would have expected to see that in the disclosure personally.

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Agreed

You appear to have a trading loss of some £6,600 after depreciation and before capital allowances.  Unless there is some reason to believe that the company will not be profitable in its second or perhaps, third year, you should recognise a deferred tax asset on the losses less the timing differences of £1,679 (11,016 - 2,621 @ 20%).  Make sure that your accounting policy on Deferred Tax is correctly stated.

I think your disclosure is a bit OTT.  I wouldn't mention the amount of the losses - just "The company has losses available to set against future trading profits".

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