Add a Temporary difference workpaper

Overview

The temporary difference workpaper adds timing differences that automatically reverse in the subsequent period. It can be used for:

• General provisions and accruals
• Doubtful debt provisions
• 63-day adjustments for employment income provisions (see below)
• Prepayments
• Foreign exchange (FX)
• Employee share scheme
• Deferred income and expenditure
• Income equalisation schemes

Temporary difference workpapers can be added to accounts directly from the trial balance or other account sources. Alternatively, they can be added as standalone workpapers from the Workpapers screen.

In addition to default features, an advanced view is available, to record more complex scenarios such as balance sheet deferred tax on temporary adjustments that are excluded from the tax return.

Add the workpaper

Add temporary difference workpapers to balance sheet accounts rather than income statement accounts. Doing so helps prevent issues when they reverse in the subsequent period. 

From your accounts

1. Navigate to Workpapers > Accounts > Trial balance (or the relevant source)
2. Locate the relevant account.
3. Select Add workpaper > Temporary difference.

From not in accounts

1. Navigate to Workpapers > Workpapers.
2. Select the New Workpaper button to create temporary difference workpaper that is not attached to a specific account.

Preparing the workpaper

General adjustments

If this is your first year using the software, you must enter prior-year figures for the carrying amount and any future taxable or deductible amounts.

1. Select the name of the workpaper to access the workpaper.
2. Complete the following fields:

• Carrying amount: this is the amount for accounting. It is automatically populated from the account in the trial balance that the workpaper is attached to.
• Less future taxable: enter amounts that are not taxable this period but will be taxable in a future period. These are usually entered as a negative. 
• Plus future deductible: enter amounts that are not deductible this period but will be deductible in a future period. These are usually entered as a positive. 
• Tax base: this is the calculated amount for tax purposes. 

63 day adjustments

For adjustments relating to employment income such as holiday pay, long service leave and bonus provisions where amounts are deductible if paid within 63 days of balance date, there are two options for the type of workpaper to use:

Option 1. 

Use a Deferred payment of employment income workpaper. This is a type of temporary difference workpaper that allows you to enter the 63 day amount directly into the workpaper.

1. Navigate to Workpapers > Accounts > Trial balance (or the relevant source).
2. Locate the relevant Balance Sheet account.
3. Select Add workpaper > Deferred payment of employment income.
4. Click the name of the workpaper to open the workpaper.
5. Enter the amount paid within 63 days as a negative value. The future deductible amount will be automatically calculated.

Option 2.

Follow the same process as general adjustments, using a temporary difference workpaper. 

1. Navigate to Workpapers > Accounts > Trial balance (or the relevant source).
2. Locate the relevant Balance Sheet account.
3. Select Add workpaper > Temporary difference.
4. Select the name of the workpaper to open the workpaper.
5. Include the non-deductible amount net of the 63-day amount deductible in the current year, utilising either a formula or manual input. The Tax base should reflect the 63-day deductible amount. 

Advanced adjustments

This optional format is useful if the tax adjustment should affect only the Balance Sheet or both the Balance Sheet and the Income Statement, allowing you to enter adjustments that impact deferred tax but not the tax return. It is commonly used when there are movements in deferred tax that are being charged directly to equity. 

1. Toggle the view from Standard to Advanced.
2. Prepare adjustments, dividing future taxable or deductible amounts into Balance Sheet movement or Income Statement movement.
3. Amounts entered in the Balance Sheet movement section automatically flow through to the BS charge column on the Reports >Deferred Tax Proof > Prior Period screen. They do not impact the tax position. 

Troubleshooting

My tax position does look correct

• check that you have entered in your movements with the correct signs. Future taxable should be entered as a negative value, and future deductible as positive. Confirm that you have also correctly entered these amounts for the previous year, especially if this is your first year using the software.

Related Articles

Deferred income and expenditure

Income equalisation schemes

Understanding workpapers