Produced by Tolley in association with Malcolm Greenbaum
  • 22 Feb 2022 10:01

The following Corporation Tax guidance note Produced by Tolley in association with Malcolm Greenbaum provides comprehensive and up to date tax information covering:

  • Temporary differences
  • Calculation of temporary differences
  • Tax rate to apply
  • Exemptions applicable
  • Non-tax deductible goodwill
  • Transaction neither affecting accounting profit nor taxable profit
  • Notes in relation to specific types of temporary differences
  • Investment in subsidiaries, branches, associates and joint ventures
  • Non-monetary assets denominated in a foreign currency
  • Unrealised intra-group profits
  • More...

Temporary differences

Calculation of temporary differences

The temporary difference arising in respect of an asset or liability is calculated by comparing the carrying value of that asset or liability with its tax base.

IAS 12 uses the concept of taxable or deductible temporary differences. Whether a temporary difference is taxable or deductible can be calculated as follows:

AssetsCarrying value* minus tax baseIf result is:
Positive = Taxable temporary difference
Negative = Deductible temporary difference
LiabilitiesTax base minus carrying value*

Taxable temporary differences give rise to deferred tax liabilities. The deferred tax liability equals the taxable temporary difference multiplied by the appropriate tax rate.

Deductible temporary differences give rise to deferred tax assets. The deferred tax asset equals the deductible temporary difference multiplied by the appropriate tax rate.

* In the context of consolidated accounts, it is important to note that the carrying value used in the above calculations is that in the consolidated rather than individual company accounts.

Tax rate to apply

The tax rate applicable for these calculations is the one that the entity expects to be applicable when the temporary difference unwinds. There are specific rules in relation to the circumstances to be taken into account when considering changes in tax laws (see the guidance note Tax accounting and changes in tax laws).

Specific guidance is given in IAS 12 in relation to the circumstances where the rate of tax applicable to a company varies depending on whether the profits are distributed to the parent. In such cases, IFRS requires

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