Frequently asked questions
How is tax accounted for?
The way tax is accounted for will depend on the accounting standard under which the business prepares its financial statements. In the UK, this will be either UK GAAP or (IFRS). Generally, EU-listed groups must prepare their consolidated financial statements using IFRS. The accounting standard adopted will also influence the disclosure made in the financial statements.
In general, the tax treatment follows the accounting treatment unless there are specific overriding provisions in tax law.
What is deferred tax?
Deferred tax is a key element of tax accounting and can be a complex area. It is an accounting concept. Its aim is to recognise the impact of the timing difference between the accounting and taxation treatment of items in the financial statements.
Examples of timing differences that give rise to deferred tax include:
- Deprecation and capital allowances: depreciation charges often appear in financial statements. For tax purposes, however, depreciation is often disallowed and capital allowances, a form of tax depreciation, are claimed instead. There is usually a mismatch in the amount of accounting depreciation compared to tax depreciation each year.
- Employer pension contributions: these are accounted for on an accruals basis but are only allowable for corporation tax purposes on a paid basis. If there are amounts due but unpaid at year end, a deferred tax asset will arise.
What are the deadlines for tax reporting?
The deadlines for reporting the tax numbers in the financial statements are aligned with the overall statutory financial reporting process. The corresponding deadline for filing the annual statutory accounts therefore depends on whether the business is a public or a private company. Public companies must file their statutory accounts6 months after the company’s year-end. Private companies must file their accounts nine months after the company’s year-end. This deadline is different from the deadline for submitting a business’ corporation tax return to HMRC, which is usually 12 months after the end of the accounting period.
Some businesses also report interim results part-way through the year, which require tax estimates to be calculated.
What tax accounting services can our auditor provide?
The extent to which your auditor can provide non-audit services will depend on the size of your business.
For larger businesses, there have been some recent changes to audit standards that could impact the extent to which non-audit services, including tax accounting and secondments, can be provided by your auditor. For more information on these restrictions see here.
We are increasingly finding that larger businesses choose to have a separate audit and non-audit service provider, even where no restriction exists, owing to perceived independence concerns and what many boards now consider to be ‘best practice’.
For smaller businesses, it is usually acceptable for the auditor also to provide tax accounting services. Our tax teams work closely with our audit colleagues to provide a seamless, comprehensive service for clients where there are no independence conflicts.