Deferred taxation

By:

James Knight

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Updated: Aug 20, 2021

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A term used in company accounts. It may refer to amounts set aside for tax deferred by capital allowances. Profits of a business are calculated after depreciation. Depreciation allowed for tax purposes may differ from depreciation used in accounts, though the total over a number of years will be the same. As tax will not therefore be related to the actual profits shown in the accounts. adjustments are made by adding to, and subtracting from, a reserve set aside for the equalization of taxation with reference to the profits, corporation tax payable more than a year hence but based on the profits for the relevant year is sometimes also shown as a deferred liability. The difference is that, whereas this amount is a known liability not payable for some time. the first amount is more like a reserve. Stock relief was another type of deferred taxation.

Reference: The Penguin Business Dictionary, 3rd edt.