TABLE OF CONTENTS With the exception of potential confusion over the terminology used there are no significant differences in the accounting treatment for current tax; just remember that in the UK companies are subject to corporation tax whereas internationally the term income tax is used to cover both the taxation of companies and individuals for this more specialized subject.
However, in spite of significant changes being made to UK GAAP in 2000 with the release of FRS 19 Deferred Tax there remain some noteworthy differences in accounting practice.
A classic example of a timing difference relates to the treatment of tangible fixed assets. Accountants depreciate such assets over their useful economic life, whereas the UK tax authorities effectively ignore depreciation, but in its place allow companies capital allowances that lower profits chargeable to corporation tax. The pattern of depreciation and capital and allowances are rarely the same thereby giving rise to a timing difference.
Deferred tax is the tax on timing differences, and represents a recognition of the impact on future tax of past events. The standard requires full provisioning subject to certain specific exemptions whereby tax is provided on all timing differences at the balance-sheet date.
International practice has a balance-sheet focus and effectively considers the tax that would be payable if the company were liquidated today. Deferred tax is the tax on temporary differences which are the differences between the carrying value of an asset or liability in...
