Over-provision of income tax
An over-provision of income tax arises when the previous period’s estimated current tax charge exceeded the amount subsequently determined. The excess normally reduces the current period’s tax expense where the earlier figure was a reasonable estimate. The adjustment reconciles the previous estimate with the actual obligation; it does not imply that the current year’s tax rate is negative.
Worked example
A prior-year liability was estimated at $15,000 and is settled for $13,500. The $1,500 over-provision reduces this year’s tax expense. With current-year tax estimated at $18,000, the reported expense is $16,500, assuming no other adjustments.
Common mistake
An over-provision reduces expense; an under-provision increases it. The amount paid to settle last year’s tax is not the current-year liability.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: tax over-provision