23Timing Differences – Unmatched
3.1.23 such Taxation Liability is caused by an originating timing difference as defined in Financial Reporting Standard Number 19;
23.1 The majority of adjustments that are required to tax computations on enquiry are probably timing differences. Here are some examples:
23.1.1 capital allowances have been claimed at 40% or 25% instead of 20%;
23.1.2 smaller items of office equipment have been wrongly categorised as repairs;
23.1.3 bad debt provisions have been treated as specific when they are general;
23.1.4 it has not been identified that a pension contribution was included in creditors and was not paid at the year end;
23.1.5 capital allowances claimed on a car have not been restricted;
23.1.6 a finance lease has been wrongly categorised as a lease purchase agreement;
23.1.7 a deduction has been made for a provision for redundancy costs when there is no commitment at the year end.
23.2 If the above transactions had been correctly treated in the tax computations of the Company they would have all represented originating timing differences under the provisions of FRS 19. What this means is that there is later a second leg of the transaction which effectively reverses the timing difference and returns the universe to equilibrium. 23.3 An example of reversing transactions is: some computer screens with a total cost of £1,000 have been written off to repairs, rather than being capitalised. In consequence they have been treated as fully deductible for tax purposes, when capital allowances should have been claimed. The accounts are not amended, but there is an adjustment to the taxable profits and to the capital allowance pool of £1,000. Capital allowances are then claimed of £200 in year one, £160 in year 2, £128 in year 3, etc. The disallowance of the expenditure of £1,000 is the originating entry; the reversing entries are the various claims for capital allowances. 23.4 As the examples given above are all originating timing differences, they all have the potential to have reversing tax effects: for the unpaid pension contribution, the reversal will almost certainly occur in the first month of the following accounting period, when the payment is made. For the capital allowances claimed at the wrong rate, the reversals occur over several years as demonstrated above. 23.5 If all of the above timing differences were identified on enquiry after the date of the Last Accounts, and the tax computations and accounts amended in consequence, prior to Completion, then almost certainly there would be no change to the net assets shown by the Latest Accounts: instead there would have been a reallocation of tax
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