What is tax liability?

What is deferred tax liability? what items come under deferred tax liability?

• what are the items which can be considered as deferred items?

• Answer:

  A deferred tax liability is a tax that may never be paid, or is paid at a later date. In the UK an import agent may lodge a large sum with Customs & Excise, and then, as items are imported, instead of paying the tax on importation, the amount is paid at a later date. Hence the requirement for a large deposit. The import tax has then been deffered until that payment is made. Another type of deferred tax would be the difference between the actual tax relief claimed (usually set by government legislation), such as capital allowances on capital items, and the amount that would be claimed if these items were at the current rate of taxation. For example, the corporation tax rate may be 19%, whereas capital allowances would be 25%. A fixed asset purchased for £4,000 could have a claim of 25%, £1,000 and that is that amount actually claimed. The corporation tax rate is 19%, and therefore, except for the legislation, the amount claimed would be £760. The difference of -£240 is the deferred tax. However, if the capital allowance claim for the first year is 40% the capital allowance claim would be £1600. Then the difference of -£840 is the deffered tax. If the corporation tax rate was 30%, the deffered tax is the first example would be £1,200 - £1,000 = £200. In the second example it would be £1,200 - £1,600 = -£400.