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Deferred Tax

Deferred Tax

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Hi All

I am a student so please be gentle. Would anyone here care to give a simple example of what is deferred tax in respect of company accounts and how it works in reality. If someone could give an example with numbers to see the process it would be a great help.

Many Thanks

PL.

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By Lorraine93
13th Jan 2012 23:55

Deferred Tax

Very simple illustration:

Net book value of assets in accounts is £2000

Pool value of assets in tax comp is £1000

Deferred tax to charge to P&L is £1000 x 20% = £200

In essence the company has reduced tax bill by £200 because it claimed additional capital allowances. The deferred tax charge to the P&L tops up the tax charge to eliminate this extra benefit.

Deferred tax can also apply to other areas but this is the main area that affects small limited companies that I look after.  

 

 

 

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By patricklynch81
14th Jan 2012 20:51

Does this mean that the £200

Does this mean that the £200 Charged to the P&L actually stays in the company bank account?

and does DT go onto the Balance Sheet?

Sorry for being "dense" on this one, but having a terrible time trying to get my head around this concept and its application to small company accounts.

 

PL

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By patricklynch81
16th Jan 2012 00:00

CEL many thanks for that. It explains the concept in a nutshell. Just one more question. Using the figure example in the link..

The small company has a deferred tax liability of £2,000. Will the company have to make a provision in the accounts, a liability provision for when the reversal will happen in a future tax year?

Thanks Again.

 

PL

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