Deferred tax

Sometimes tax officials may regard as ‘capital’ items which a business has treated as ‘revenue’ expenditure. The business will not then be allowed to charge the whole of such amounts as expenses against taxable profits in the current year. It will have to ‘add back’ to book profits the amounts charged in the accounts, and write them off in stages over a number of years. This difference in treatment affects the timing of charges against profit, and of tax payments; but it does not change the total amount of tax payable (unless the tax rate changes).