The deferred tax refers to the sum of income tax that will be due or refundable in the future due to temporary differences between the carrying amount of assets and liabilities of the financial statements and their tax bases. Simply stated, it is tax that you have paid but not received yet.
In the case of the small and medium-sized enterprises (SMEs), the deferred tax could have an impact on profitability, cash flow, and compliance. It is not only good practice to understand it but it is a necessary requirement. In FastLane HR, our tax specialists assist SMEs to overcome the complexities of deferred tax and other complex requirements in a clear and precise manner.
The Basics of Understanding Deferred Tax
Deferred tax assets (DTA): Future tax savings relating to deductible temporary differences (e.g., provisions, carry-forward losses).
Deferred tax liabilities (DTL): Payments of taxes which occur in the future as a result of temporary differences of a taxable nature (e.g., accelerated depreciation).
What causes it to occur: Differentiations between tax laws and accounting rules.
Impact: Reflects fair financial status, proper reporting and planning is made.
Requirements To Comply with DT
According to accounting principles like IFRS or HKFRS, DT has to be calculated and presented. For SMEs, compliance means:
- Properly identified deferred tax assets and deferred tax liabilities.
- Remaining abreast of tax changes or legislations.
- Making the right disclosures in financial statements.
FastLane HR will also ensure that the SMEs stay updated with the current rules and regulations to prevent expensive errors or fines.
Calculate DMT Calculation
An easy step by step procedure:
- Determine interim differences between accounting values and tax bases of every asset or liability.
- Calculate the rate of tax to be used (according to the rates enacted or substantially enacted).
- Divide the difference by the tax rate to calculate deferred tax asset or liability.
- Be aware of it in your financial statements, modifying it, at least once every reporting period.
Example: When your equipment is accounting carrying amount USD 100,000 and tax base USD 80,000, then temporary difference would be USD 20,000. When the tax rate is 15 percent, the amount of your deferred tax liability is USD 3,000.
Using the recent accounting and tax software, FastLane HR will be able to manage the entire calculation process and ensure its accuracy and efficiency.
Deferred Tax Reporting of Financial Statements
Deferred tax appears on:
Balance Sheet: As a DTL or DTA.
Inc. Statement: As deferred tax expense or income.
SMEs also have to provide information concerning the nature of temporary differences, unrecognized deferred tax assets and the difference with the past. FastLane HR, our team gives you the assurance that your reporting is in compliance with the statutory requirements as well as those of the stakeholders.
Common Mistakes
- Mistaken identification of deferral tax.
- Failing to correct the impact of change of tax rates.
- confusion of temporary differences with permanent differences.
- The absence of appropriate documentation to justify the deferral balancing of tax.
To prevent these errors, FastLane HR tax professionals can perform reviews and corrections of their records, and apply controls to prevent these misstatements.
FastLane HR and how they will help SMEs in Deferred Tax Management
Tax Experts: We simplify DT so that you can understand it.
Calculation & Reporting Support: We prepare/review your DT figures.
Compliance Monitoring: We monitor the changes in the tax laws and update your books.
Strategic Advice: We assist you in making use of deferred tax planning cash flow.
Offering: fastLane HR can help you streamline your DT process and focus on business growth, by calling now.
FAQs
The difference between the timing of the tax that is recorded in your accounts and is due (payable or recoverable) in the future.
Determine the temporary differences and multiply them by the tax rate to be applied.
It is either: an asset of future tax savings or it is a liability of future tax payments.
It affects the adherence, cash flow and the perception of your business by investors and lenders.
Yes. We provide SMEs with end-to-end support in the calculation and reporting of on deferred tax.
Conclusion
The impact of deferral tax is far more than your end of year figures- it impacts the cash flow, compliance and strategic decision making. The good management of deferred tax by SMEs decreases the risk and enhances financial transparency.
Under FastLane HR, you get a reliable partner to do the heavy lifting of deferred tax on your behalf to ensure that you comply and can concentrate on growth.
You are willing to make it easy on your DT?
Contact FastLane HR today to get in touch with our tax professionals.