Deferred Tax Rate

Deferred Tax Rate

• IRIS elements basis period reform

Company having a year end of 31 December 2023.

Profits are less than £50k.

Would deferred tax be calculated 19% or 25%?

Replies (16)

By Ruddles
03rd Jul 2024 16:41

What rate do you expect to apply to the liabilities when they reverse?

Thanks (4)
By JenniFraser
03rd Jul 2024 17:17

Whatever is the tax rate at the time, i guess

Thanks (0)
By Ruddles
03rd Jul 2024 17:46

Thanks (1)
By lionofludesch
03rd Jul 2024 17:56

JenniFraser wrote:

Whatever is the tax rate at the time, i guess

No need to guess.

See para 29.12 et seq of FRS 102.

Thanks (2)
By Paul Crowley
03rd Jul 2024 17:26

+1
@OP
it is not a current liability
If reversals will be when the company has a higher profit, then use the relevant rate. There are 3 effective rates, depending on the taxable profit.

Thanks (2)
By Ruddles
03rd Jul 2024 17:52

Which taxable profit should also reflect the amount of the reversal. Eg a rental company may consistently be making rental profits of £25k a year, but sitting on property with a potential gain of £100k. (I wouldn't be faffing around with marginal rates, though.)

Thanks (1)
By Paul Crowley
03rd Jul 2024 17:58

I would not get excited on this if it was just the usual timing differences, just use the current year's rate.

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By lionofludesch
03rd Jul 2024 18:10

Paul Crowley wrote:

I would not get excited on this if it was just the usual timing differences, just use the current year's rate.

To be fair, how far can you go? It's not like you can say, "we'll need this building for another twenty years, so what are the rates for 2044/45?"

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By Ruddles
03rd Jul 2024 18:31

You don’t need to guess the future rates. You use the rates in force at the balance sheet date. So even if we expect the reversal to happen in 2072 we would use 19%/25% at the moment.

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By lionofludesch
03rd Jul 2024 19:30

Ruddles wrote:

You don’t need to guess the future rates.

Yeah. I know.

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By JenniFraser
04th Jul 2024 10:13

So I assume a 19% rate should be ok since the profits are less than £50k (ie not going in the marginal or higher rate tax threshold).

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By Ruddles
04th Jul 2024 11:26

Subject to my point above re the size (and nature) of the timing differences, I'd agree.

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By JenniFraser
04th Jul 2024 12:01

Thanks, thats what I thought as well

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By Mr_awol
04th Jul 2024 12:09

Ruddles wrote:

Which taxable profit should also reflect the amount of the reversal. Eg a rental company may consistently be making rental profits of £25k a year, but sitting on property with a potential gain of £100k. (I wouldn't be faffing around with marginal rates, though.)

If the company was recognising deferred tax and holding a rental (investment) property pregnant with 1 £100k gain, would it not be recognising a deferred tax provision on the revaluation too, anyway?

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By Ruddles
04th Jul 2024 12:19

Possibly, but of no relevance whatsoever to the point in hand. Mine was just a very simple example to demonstrate that the tax rate on this year's profits may have little or no bearing on the rate of tax that will apply to the timing differences when they reverse.

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