Income Tax

What income tax covers

Accounting for income tax covers both the tax payable on this period's taxable profit and deferred tax, which arises because accounting profit and taxable profit are measured differently. Temporary differences reverse over time and give rise to deferred tax assets or liabilities; permanent differences never reverse and affect only the current charge.

These challenges ask you to reconcile accounting profit to taxable profit, compute current and deferred tax, and present the total charge.

Where marks are usually lost

• Creating deferred tax on a permanent difference.
• Applying the current tax rate rather than the rate expected when the difference reverses.
• Recognising a deferred tax asset without considering whether future taxable profit will be available.