Tax reconciliation report

Quite often, the figure given by the company’s tax advisors is different to your provision for Corporation Tax (CT) in the management accounts. How do you go about reconciling the two numbers?

Tax treatment

If there’s a significant change between this year’s and last year’s CT computation - in either tax adjustments to profit or the CT rates that apply - then there will be a significant difference between the provision you have made (based on last year) and the actual CT bill for this year. Indeed, the Taxman treats certain expenses that appear in your accounts differently (such as entertaining and depreciation).

Note to the accounts?

All company statutory accounts (except those small companies applying the Financial Reporting Standard for Small Entities (FRSSE)) have to include a “tax reconciliation” note which reconciles the expected tax charge on profit before tax (PBT) (PBT x CT rate) to the actual tax charge appearing in the annual accounts. Your tax advisor’s calculations will make adjustments for items which the Taxman treats differently (such as entertaining and depreciation). They then apply the CT rates for the tax year(s) (that’s April 1 to March 31 for CT) covered by your accounts.

Review the tax reconciliation note in the statutory accounts or ask your company’s tax advisors for a copy of their tax reconciliation between PBT and the actual tax charge. Armed with this, present your own Tax Reconciliation Report to the MD. Explain that the provision is set using an estimated CT rate based on the prior year’s tax charge.