Temporary difference workpaper

Introduction

The temporary difference workpaper facilitates the creation of temporary or 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 integrated into accounts directly from the trial balance or other account sources. Alternatively, they can be established as standalone not in accounts workpapers from the Workpapers screen.

In addition to its default features, an advanced view is available, empowering users to navigate complex scenarios concerning balance sheet deferred tax on temporary adjustments that are excluded from the tax return.

Adding the workpaper

Important

Ensure temporary difference workpapers are added on accounts on the balance sheet wherever feasible. They may also be added as not in accounts if necessary. While the workpaper can be added to accounts on the income statement, it is not recommended without a full understanding of the carrying amount position over time as tax return and deferred tax positions reverse in subsequent periods.

From your accounts

1. Navigate to Workpapers > Accounts > Trial balance (or the relevant source)
2. Identify the account for which you wish to add the workpaper.
3. Choose Temporary Difference from the Add workpaper drop-down list.

From not in accounts

1. Navigate to Workpapers > Workpapers.
2. Click on the New Workpaper button to create a not in accounts temporary difference.

Preparing the workpaper

General adjustments

1. Click the hyperlink to access the workpaper.
2. Make necessary adjustments, considering future taxable or deductible amounts.

Each section of the workpaper

• 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 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. Identify the balance sheet account for which you wish to add the workpaper.
3. Choose Deferred payment of employment income from the Add workpaper drop-down list.
4. Click the hyperlink 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 procedure as for general temporary difference adjustments, using a Temporary difference workpaper. 

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