Value for corporation tax - Accounts vs CT600

[penx]

I purchased a laptop this year, so am counting it as an asset and applying 33% depreciation in my accounts, while claiming first year allowance for 100% of its value in my CT600 calculations.

As this is the first year I've had to do this, I have a question but haven't been able to find the answer elsewhere.

Should the corporation tax owed in my accounts (AC34, AC108, AC327) always match the tax payable on the CT600 (86)?

At the moment my figures don't match due to using the 2 different ways of accounting for the laptop, as described above.

[Jessica@WhiteFieldTax]

The entry in the accounts is a provision. It can vary from the amount paid for a myriad of reasons, and the adjustment is put through next period.

The provision - the accounts entry - should be your best estimate as to the CT payable per CT600 (or more correctly tax computations supporting CT 600).

In short regardless of the 33% depreciation rate used, the CT in the accounts reflects the 100% write off. It will therefor be less than 20% of profit this year, next year it will be over 20% of profit, as the position reverses unless, of course, you invest in further assets.

To square this off properly you would want a deferred tax provision. You can google this, but no one really bothers with this these days and I suspect a lot of accountants don't even know such a thing exists.

[TheCyclingProgrammer]

My accounts have always had a deferred tax provision and to be honest, I still don't get it.

[Jessica@WhiteFieldTax]

My accounts have always had a deferred tax provision and to be honest, I still don't get it.

That's quite an admission TCP

[Maslins]

Sounds like deferred tax to me.

I spent 18 months of my employed life working lots with deferred tax for a big accountancy firm...and I agree with Jessica, for your typical micro business it's a waste of time!

Basically deferred tax tries to smooth out timing differences between accounting profit and corporation tax payable, so your tax charge in the accounts links better with the accounting profit.

You buy that laptop and get 100% tax relief in year of purchase (annual investment allowance), whereas the depreciation is spread over 3 years. Say the computer costs £1,500, deductions are:
Year Accs expense Tax deduction
1 £500 £1,500
2 £500 £nil
3 £500 £nil
So over the 3 years cumulative, they work out the same, just timing difference. Deferred tax can deal with the temporary discrepancy.

[TheCyclingProgrammer]

That's quite an admission TCP

My first accountant described it as "something that only really makes sense to accountants". Normally I'd call that patronising but in this case, I'll give him that one!

[Jessica@WhiteFieldTax]

My first accountant described it as "something that only really makes sense to accountants". Normally I'd call that patronising but in this case, I'll give him that one!

We can doa trade off: I'll give you a 101 on deferred tax, you tell em what the adjustable forks on my bike are for and what to do with them...

[TheCyclingProgrammer]

We can doa trade off: I'll give you a 101 on deferred tax, you tell em what the adjustable forks on my bike are for and what to do with them...

Haha, unfortunately my knowledge or bikes is limited to riding them and basic maintenance.

I think I will just about live with not knowing about deferred tax.

[penx]

the CT in the accounts reflects the 100% write off. It will therefor be less than 20% of profit this year

Thanks so much for your help!

Are you saying that in my accounts, box AC108 (UK Corporation Tax) would be less than box AC327 (Profit or (loss) on ordinary activities before taxation multiplied by the rate(s) of Corporation Tax applicable), and that the offset should be put in AC110 (Deferred Tax)?

The figures I put in are both 20% of profits, representing the 33% depreciation of the laptop, with 0 in the deferred tax. Unfortunately I have already submitted these figures to companies house - as the computations/FYA comes after this.

Are you also saying that I shouldn't worry about deferred tax anyway, therefore it's ok if my accounts figure (an estimated provision) does not match my CT600 figure?

I guess in next year's accounts I can adjust the figure in the previous year to account for the deferred tax.

[Jessica@WhiteFieldTax]

I'm not familiar with the template you are using, so the box numbers I don't know.

However you are broadly on the right track.

I would add:

~ the wording on profits times rate of tax is unhelpful - in your case the rate of tax is less than 20% due to the laptop allowances. Eg in your case the tax rate becomes 17.2% or whatever.
~ you could do the deferred tax adjustment, but honestly it's not necessary
~ if accounts have gone to CH already, use the same set for HMRC, that the tax provison differs to the CT600 makes no odds to HMRC. Its only impact is to notionally reduce your distributable profits.

HTH