What is Deferred Tax
Deferred tax is the difference between the accounting and tax application of a transaction. When all the accounting processes are completed according to the accounting standards, and reporting has been done on those results, then these final reports will be adjusted in what is referred to as the tax computation in the financial statements.
Various tax principles will be taken into account as well as tax rebates and allowances unique to the entity. The deferred tax assets and liabilities will be listed in the balance sheet and the income statement.
The effect of the deferred tax on the taxable profits from an accounting perspective in the income statement during financial reporting is such that it reflects the actual results as if the tax movement occurred in that period.
The balance will then sit in a balance sheet account for future tax purposes.
Frequently asked questions
What is a deferred tax asset
A deferred tax asset represents a financial benefit, the benefit of which is to be utilised for tax purposes in the future.
What is a deferred tax liability
IAS 12 defines a deferred tax liability as the amount of income tax payable in future periods in respect of taxable temporary differences.
What happens is I have tax losses
These will be recorded as a deferred tax asset in your books for claiming against future tax profits.
What is tax depreciation
Tax depreciation is the same as wear and tear. This is an allowance offered by the revenue service whereby an entity can increase its tax expenses and reduce its taxable income on which the tax rate is applied.
What is tax relief
Tax relief is a program or set of rules in place to promote a cause and promote the uptake and thereby achieve the objective through alleviating cash flow pressure. An example of this would be the ETI or Employment Tax Incentive, where employers are rewarded for employing young people.
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