Fundamental Glossary / Earnings & Accounting Concepts
Deferred Tax
Tax that will be payable, or recoverable, in future periods because accounting profit and taxable profit differ in timing.
Formula
Deferred tax liability for amounts that will be taxed later. Deferred tax asset for amounts that will reduce future tax, recognised only when recovery is probable.
What it means
Depreciation is the classic timing difference: the tax authority may allow a faster charge than the books, so the company pays less tax now and more later. The later amount is a deferred tax liability.
A deferred tax asset on carried-forward losses is only as good as future taxable profit.
How to read it
Large deferred tax assets relative to equity are a bet on future profit. If that profit is unlikely, the asset should be written down and today's equity is overstated.
What to watch
Deferred tax is not a cash reserve, and a deferred tax liability is not a bank loan. Do not drop it into net debt without a reason. Do not ignore a deferred tax asset that is propping up book value.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.