Glossary

Provision for tax

A provision for tax is the estimated corporation tax owed on the period's profit — a balance-sheet liability that reminds you part of profit belongs to HMRC.

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Estimatedtax owed

Liabilityon balance sheet

Definition

A provision for tax is the estimated corporation tax a company owes on its profits for the period, shown as a liability on the balance sheet until it is paid.

In plain terms

It is the tax bill your accounts recognise as owed, even though it will not be paid for months. Setting it aside in the accounts stops profit looking bigger than the cash you can actually keep.

Why it matters for your company

The tax provision reminds you — and any reader of your accounts — that a chunk of profit belongs to HMRC. Matching it with a real cash reserve, as in budgeting for corporation tax, keeps the payment painless.