Deferred Tax Calculator (NAS 12 / IAS 12)
Tick the differences between your accounts and your tax return, enter the figures, and get the deferred tax asset or liability, the tax expense and the journal entries.
1. Tick the differences that apply
Tick only what applies to this company. Each tick opens the figures that item needs, right below. Where the tool can work a figure out from the others (closing balances, taxable profit, losses used), it does so for you.
Any other difference
For anything not listed. Say whether it makes the asset or income worth more in the books than for tax (taxable), or the opposite (deductible).
2. Tax rate and profit
Total tax expense for the year
How deferred tax is worked out
This tool follows NAS 12 / IAS 12 Income Taxes, the balance sheet liability method. The accounts and the tax return treat some items at different times. Where that gap will reverse in future, the tax effect is booked now as deferred tax.
- Temporary difference: the carrying amount in the financial statements less the tax base. If an asset is worth more in the books than for tax, future tax will be higher: a deferred tax liability. If a liability is more in the books than for tax, future tax will be lower: a deferred tax asset.
- Deferred tax balance: the temporary difference multiplied by the tax rate.
- Deferred tax for the year: the closing balance less the opening balance. It goes to the profit and loss account, except the part that relates to items already taken to other comprehensive income, such as revaluation, which goes there.
- Current tax: taxable profit multiplied by the rate. Taxable profit is the profit in the accounts adjusted for the differences, so this tool works it out for you from the items you tick.
Points to keep in mind
- Fill in last year's closing figures in the "Last year-end" column, from last year's deferred tax working. If there was no deferred tax before, the whole balance is booked this year; check with your auditor whether part belongs in opening retained earnings.
- For depreciation, enter the combined written down value of all the pools for income tax purposes. If revaluation is included in the book value, tick the revaluation item as well so that its tax goes to other comprehensive income.
- Deferred tax assets are recognised only when future taxable profit is probable. Unused tax losses expire after the period allowed by the Income Tax Act, so check that before recognising them.
- Deferred tax assets and liabilities can be shown net on the balance sheet only when they relate to the same tax authority and the company has the legal right to set them off.
- This is a planning aid. Check the figures against your tax computation and your auditor's view before booking them.
Frequently asked questions
What is deferred tax?
Deferred tax is the tax effect of timing differences between the profit in the accounts and the profit for tax. When an item is counted in a different year for accounts and for tax, the tax on the gap is booked now as a deferred tax asset or liability, so that the tax expense matches the profit shown in the accounts.
Which differences create deferred tax?
Only temporary differences, where the gap reverses in a later year. Typical ones are depreciation at a different rate for tax, provisions allowed only when paid, unrealised gains taxed only when realised, revaluation surplus, leases and unused tax losses. Permanent differences, such as expenses never allowed or income that is exempt, do not create deferred tax.
How do I know which options to tick?
Tick an item if the accounts and the tax return treat it differently in timing. Most companies with fixed assets have the depreciation difference. Tick provisions if you have gratuity, leave pay, bad debt or other provisions that tax allows only on payment. If you are unsure, compare the profit in the accounts with the profit in the tax return and list every adjustment that will reverse.
Which tax rate do I use?
The rate that is expected to apply when the asset is recovered or the liability is settled, based on the law already in force at the year end. If the rate changed during the year, put last year's rate in the second box and the tool restates the opening balance.
When can I recognise a deferred tax asset?
Only when it is probable that there will be enough taxable profit in future to use it. A history of losses is a warning sign. If it is not probable, untick the recognition box, or lower the share of losses expected to be used. Review the position every year.
How is depreciation handled when tax uses pools?
Tax depreciation is usually worked on pools of assets rather than item by item. Enter the total written down value for all the tax pools, and the tool compares it with the written down value in the books. It also works out the add-back of book depreciation and the deduction of tax depreciation for the taxable profit.
Where does the deferred tax on a revaluation go?
To other comprehensive income, and so to the revaluation reserve, because the revaluation itself was taken there. Tick the revaluation item, make sure the asset's carrying amount includes the revalued figure, and enter the surplus created in the year.
What if I have never booked deferred tax before?
Leave the last year-end column empty. The tool then books the full closing balance through this year's profit or loss. If the omission is an error in earlier years, the correction may belong in opening retained earnings instead, so agree it with your auditor first.
Does NFRS for SMEs also need deferred tax?
Yes. Section 29 of the NFRS for SMEs also asks for deferred tax on timing differences, using a similar approach to NAS 12. Small differences exist, so check the section if you report under that standard.
Can this replace the auditor's or accountant's working?
No. It is a planning and working aid that follows the standard's method. Check the inputs against the tax computation and the financial statements, and agree the treatment with your auditor before posting entries.