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The Deferred tax provision account template is the working paper you attach directly to a company's deferred tax balance sheet account. It builds up the accelerated capital allowances timing difference from the fixed asset register and the tax computation, applies a tax rate to arrive at a deferred tax figure, and then compares that figure to the actual balance on the account it sits on, flagging any difference and letting you post a correcting journal in one click.

Table of contents 

When should I use this template?

Use this template on the deferred tax provision (or deferred tax asset) balance sheet account itself, once you know the business has timing differences between its accounting and taxable profits. The most common reason is that capital allowances claimed for tax exceed, or lag behind, the depreciation charged in the accounts. Attach it to the specific nominal code carrying the deferred tax balance so the working paper can check itself against the ledger.

Do not attach it to a profit and loss account. The template checks the type of account it is placed on and shows a warning if it is used on an income or expense account, since it is designed to reconcile a balance sheet position.

Before you start

  • Have the client's tax computation to hand, specifically the tax written down value (WDV) carried forward and any trading losses carried forward.
  • Know which fixed asset accounts make up the net book value figure you want to compare against the tax computation, and which of those assets (if any) do not attract capital allowances.
  • Make sure the template is attached to the correct deferred tax nominal code before you start entering figures.

Background

Under FRS 102, a company recognises deferred tax on timing differences: differences between the profit shown in the accounts and the profit assessed for tax that are expected to reverse in a later period.

The most common example, and the one this template is built around, is accelerated capital allowances. Where the capital allowances claimed for tax purposes run ahead of the depreciation charged in the accounts, a deferred tax liability arises for the tax that will become payable when the timing difference unwinds. The reverse gives rise to a deferred tax asset.

Steps

  1. Confirm the template is sitting on the correct deferred tax balance sheet account. If you see the misuse warning at the top, move it to a balance sheet code instead.
  2. Select the fixed asset account or accounts that make up the net book value to be compared against the tax computation. The template pulls through the net book value for the accounts you choose, for both the current and, where one exists, the prior period.
  3. Enter the net book value of any assets included in that selection which do not attract capital allowances, so they are excluded from the comparison.
  4. Add a row for any other adjustment needed to reconcile accounts net book value to the tax computation. You can add as many named rows as you need, for both years.
  5. Enter the tax written down value carried forward per the tax computation. The template nets this off against the adjusted net book value to arrive at the accelerated capital allowances timing difference.
  6. Enter trading losses carried forward, if any. These are expected to be entered as a negative figure, and a warning appears as a reminder if you enter a positive number.
  7. Add a row for any other tax timing difference not already covered (for example, other short-term timing differences), naming each row as needed.
  8. Enter the applicable tax rate as a percentage. This is applied to the total timing differences to calculate the deferred tax figure for the period and, where a comparative exists, for the prior period.
  9. Compare the calculated deferred tax figure to the actual balance on the account. If they match, the template reconciles automatically. If not, an indicator shows the account value, the template's calculated value, and the difference between them.
  10. If there is a difference you want to correct, use the adjustment button to post a journal that moves the shortfall or excess between the deferred tax account and the tax charge account, bringing the ledger in line with the calculation.

What flows through to the rest of the accounts/workflow?

The difference between the current and prior period deferred tax figures represents the movement charged (or credited) to the profit and loss account for the year. Where the calculated deferred tax figure does not match the account balance, posting the adjustment updates both the deferred tax balance sheet account and the tax charge in the profit and loss account, so the statutory accounts tie back to this working paper.

What rolls forward next year?

When you copy data forward into a new period, the template carries forward the net book value of assets excluded from capital allowances, any other adjustment rows (with their descriptions), the tax written down value carried forward, trading losses carried forward, and any other tax timing difference rows (with their descriptions). The prior year column then shows these as the new comparative, ready for you to enter this year's figures.

Where the data comes from

  • Net book value of fixed assets: pulled directly from the accounts, based on the asset account or accounts you select.
  • Assets not attracting capital allowances, tax written down value, trading losses carried forward, and other timing differences: entered manually from the client's tax computation.
  • The account balance the template reconciles against: the actual balance on the deferred tax nominal code the template is attached to.

Frequently asked questions

Can I use this template on a profit and loss account?

No. It is designed for the deferred tax balance sheet position, and a warning appears if it is placed on an income or expense account.

Why does it warn me about trading losses carried forward?

Losses carried forward are expected to reduce the timing difference, so they should normally be entered as a negative figure. A positive entry triggers a hover warning as a check.

What if there's no prior period to compare against?

The template simply shows the current period's figures and calculation. The comparative columns only appear once a prior period exists.

What happens if the calculated deferred tax doesn't match the account balance?

The template shows an indicator with the account value, the calculated value, and the difference, and offers an adjustment button to post a correcting journal between the deferred tax account and the tax charge account.

Is this the same as the Corporation Tax module's deferred tax workflow?

No. This is the accounts-side working paper for the deferred tax balance sheet account. The Corporation Tax module has its own, separate deferred tax and timing differences workflow used to prepare the tax computation, covered in How do I prepare the deferred tax / tax disclosures schedules (UK market). The two are not linked by this template.

How does this relate to the Deferred tax provision reconciliation?

They share a name but serve different purposes. This account template attaches to a specific deferred tax nominal code and reconciles its calculation against that account's actual balance, with an adjustment button to correct any difference. The Deferred tax provision reconciliation is a standalone working paper not tied to a specific account. It carries out the same style of calculation, with a more detailed tax rate selection, as a supporting schedule, without comparing to a live account balance or posting adjustments.