Tax Part 7

Quick reference

• 00:04 Detail done, still plenty more to go.
• 00:07 Let's keep going with taxation.
• 00:10 So let's go back to our calculation sheet.
• 00:14 We're now going to the tax payable and paid section.
• 00:16 In this section, tax that never seems to die, it just goes on forever.
• 00:21 We are now going to work out what our tax payable and paid is.
• 00:24 So we'll start with our accounting taxable profit.
• 00:26 Don't forget we've already calculated that.
• 00:29 That's come from row 271.
• 00:31 So we'll bring that in here and copy that across.
• 00:36 Now, some people say, should I put a row reference in here cuz it's a fair way up.
• 00:40 The way I argue is, if it's in the same section, taxes is all the same section.
• 00:44 You like to think people have kept track of what everything is and
• 00:48 where everything is.
• 00:49 Putting too many row numbers in here just creates a lot of noise, so
• 00:52 I probably wouldn't put it in, in this instance.
• 00:55 Similarly, the depreciation timing difference, we've also calculated that,
• 01:00 that's in row 307 and we can pull that out here and copy that across.
• 01:05 The summation of the two, Alt+=, gives me my taxable profit or loss before losses.
• 01:11 Now essentially what I've done here by putting the depreciation timing
• 01:15 difference.
• 01:15 Is we've taken the Accounting taxable profit.
• 01:17 Which you recall, is the net profit before tax after the permanent differences have
• 01:21 been adjusted for.
• 01:22 We've then added back the accounting tax and deducted the depreciation tax,
• 01:28 because it's a tax calculation, that's what we should do.
• 01:33 Now, we've got to row 321, that's our taxable profit or
• 01:37 loss before losses, yes before losses.
• 01:39 Because if we have any losses in our reserves, we can bring them in and
• 01:44 offset them depending upon the jurisdiction we're in.
• 01:47 Now look, this is not a tax course.
• 01:49 This is a financial modeling course where we're showing you how you model tax
• 01:54 losses if you can model tax losses.
• 01:56 Now in some countries, like the UK in the past for instance.
• 01:59 It used to be that you could only take tax losses six years forward and
• 02:02 one year back and that used to be one of the rules.
• 02:05 In other countries, you can only use them for certain things.
• 02:08 If your actual business changed dramatically,
• 02:10 you wouldn't be able to use the tax losses.
• 02:12 Cuz it was taking the tax losses from one business and putting them in another, and
• 02:16 that's a no no.
• 02:17 If you're not sure, go and consult a tax expert.
• 02:20 This isn't a tax course.
• 02:22 We're just saying, if you can use the tax losses, this is how you would do it.
• 02:26 So one of two things will happen in row 321.
• 02:29 This will either be non-negative, so it'll be a positive or zero value, or
• 02:33 it will be negative.
• 02:34 If it's non-negative,
• 02:36 that will mean that you can offset any tax losses you've built up already.
• 02:42 If it's negative,
• 02:43 you're creating new tax losses that you can add to your pile of tax losses.
• 02:47 So we need to keep a running total of all our tax losses.
• 02:52 Here's the tax losses memorandum here.
• 02:53 We've just got to keep a running total of how many tax losses we've created and
• 02:57 how many we've used.
• 02:58 We can't use more than we actually have, but
• 03:01 we can keep track of what we create as well.
• 03:04 Now I'm going to assume that my deffered tax asset sat on my balance sheet is all
• 03:08 due to tax losses.
• 03:10 And the way we get a DTA is to take our tax losses in total,
• 03:13 multiply them by the prevailing tax rate.
• 03:15 I'm assuming 30% and that gives us our actual deferred tax asset.
• 03:21 If I have my deferred tax assets and I want to work at my tax losses.
• 03:24 I simply take my DTA and divide it by my tax rate.
• 03:27 Now I've already put this calculation in here for you.
• 03:32 If the actual tax rate is equal to zero, then it's zero.
• 03:36 Otherwise, it's DTA divided by tax rate.
• 03:38 I'm being nice, I've also put that number here in the opening balance for
• 03:43 my control account.
• 03:45 And guess what, I've done the meaningless things of the opening tax loss here
• 03:49 being the previous periods closing balance.
• 03:51 And I've also summed these up because we were all getting nicely bored with
• 03:55 watching me doing this all the time.
• 03:57 But I've gotta calculate my tax losses created during the period.
• 04:01 This is going to be when row 321 up here,
• 04:05 the actual taxable profit or loss, is negative.
• 04:08 But I need it to come in as a positive number down here, so
• 04:11 I'm going to have to go =-.
• 04:13 And then to test when it's negative,
• 04:15 I'm going to use the min function which will take the minimum of two values.
• 04:19 So I'm gonna take the minimum of row 321 and 0.
• 04:25 So if the number is negative, it will take row 321 and
• 04:27 then you make that negative number positive.
• 04:30 And if it's positive or 0, it would just take 0 and
• 04:32 we don't care about the minus sign.
• 04:34 So we bring that in.
• 04:38 And then the tax losses used, well, we've gotta be careful here.
• 04:44 Tax losses used will be the minimum of my out in tax loss and
• 04:49 the actual profits I've got.
• 04:52 Now I've gotta be careful if those profits are negative.
• 04:54 So we're going to actually have to take the max of the min.
• 04:57 So we'll take the minimum of my profit and my opening tax loses.
• 05:01 Because we don't need to include tax losses created during the period,
• 05:03 because we're using them.
• 05:05 But given the profit might actually be negative,
• 05:08 we need to put a max in front to restrict it so it can't go below 0.
• 05:13 And then it's negative because we're removing it from the actual account.
• 05:16 So it's =-(IF(,
• 05:20 this number here, J321>0,
• 05:27 then we'll do the max ( of
• 05:31 the min, ( of J321, and
• 05:36 the opening balance here,
• 05:41 which is J340, ), 0.
• 05:47 If it's J321 is not greaher than zero, then it's zero anyway,
• 05:51 close brackets and copy across.
• 05:54 We have now created our tax losses used and
• 05:57 we can put those row 342 straight back in here.
• 06:00 So = J342, we've just put in here.
• 06:07 Bang, copy that across, done.
• 06:10 Now just to show you here, if I make this minus 200 instead,
• 06:14 you can see how it's actually working, we get a loss in this period.
• 06:18 So my tax losses memorandum here and then it gets used in the next two periods.
• 06:22 31 goes in the next period,
• 06:24 because my profit is 31 and because in the next period it's in excess of 26.
• 06:29 I used the 26 and that's how it's working, nice and simple.
• 06:33 Right, that gives me my taxable profit after losses.
• 06:36 We just take the sum of those two rows.
• 06:42 We then bring in our tax rate of 30% again, equals, let's go and find it.
• 06:46 We had it up here, just copy that.
• 06:50 Now that should be a percentage, not a number, so let's just go through and
• 06:53 put that as a percentage.
• 06:55 And then this is going to be equal to, now, this is a cash number.
• 07:00 We will not get money off the tax man if it's negative, so
• 07:03 we've got to restrict it.
• 07:04 It's the maximum of this and that restricted to 0.
• 07:11 And further, we want this to be a line calc style and copy that across, done.
• 07:18 There is our tax payable for the period.
• 07:20 Next time out, we'll calculate then for the tax payable and
• 07:22 paid in the control account, allowing for the delay of one year.

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