Deferred taxation is the recognition of differences in the timing of income and expenditure for accounting and tax purposes. These differences lead to deferred tax assets or liabilities, which balance the timing differences between taxable and accounting profits in the accounts.

Example: A pharmaceutical company claims accelerated tax relief on research and development (R&D) expenses. This creates a temporary difference between accounting and taxable profits, leading to deferred tax liability in the accounts. The company gradually recognises this liability over the following years as the timing differences reverse.

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