SSAP 15 Identifies Five Categories of Timing Differences

SSAP 15 identifies five categories of timing differences

(a) short-term timing differences from the use of the receipts and payments basis for taxation purposes and the accruals basis in financial statements: these differences normally reverse in the next accounting period;

(b) availability of capital allowances in taxation computations which are in excess of the related depreciation charges in financial statements;

(c) availability of stock appreciation relief in taxation computations for which there is no equivalent charge in financial statements;

(d) revaluation surpluses on fixed assets for which a taxation charge does not arise until the gain is realized on disposal;

(e) surpluses on disposals of fixed assets which are subject to rollover relief.

The accounting procedure is to debit the income statement for any year with the tax on accounting income. The difference between this debit and the Corporation Tax due for the year is transferred to a deferred taxation account, which must be shown separately in the balance sheet.

Summary of SSAP 15, Accounting for Deferred Taxation

The potential amount of deferred tax for all timing differences should be disclosed by way of note, distinguishing between the various principal categories of deferred tax and showing for each category the amount that has been provided within the accounts.

Deferred taxation dealt with in the income statement should be shown separately as a component of the total tax charge or credit in the income statement or by way of note to the financial statements. The income statement or a note thereto should indicate the extent to which the taxation charge for the period has been reduced by accelerated capital allowances, stock appreciation relief and other timing differences.

Deferred taxation account balances should be shown separately in the balance sheet and described as 'deferred taxation'. They should not be shown as part of shareholders' funds.

Summary of SSAP 8, The Treatment of Taxation Under the Imputation System

Dividends received must be shown with the related tax credit, the tax then being included in the taxation charge in the income statement.

Dividends paid or proposed must be shown without the related tax credit or ACT.

ACT on proposed dividends should be included as a current tax liability in the balance sheet, the proposed dividend being shown in current liabilities without the addition of the related ACT. The charge for corporation tax in the income statement should show the total liability and not merely the mainstream liability.

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Read on: Computing Taxable Income

Computing taxable income

Financial accounting, which is governed by a 'true and fair' presentation of financial position and the results of operations, does not share in all respects the principles which govern the computation of taxable income. Differences between 'book' and tax accounting originate from the following:

(i) Some items which appear in the income statement are not allowed for tax purposes. These include entertaining expenses of home-country customers and certain types of donations and subscriptions.

(ii) Dividends received from other companies which are resident... see: Computing Taxable Income