Deferred tax11 Aug 2019 00:25
One thing that I didn’t pick up at the time when the 2018 finals were announced was that we had recognised a deferred tax asset of £889k in respect of brought forward tax losses.
For the non bean counters, where a company has prior period tax losses that it is able to offset against future taxable profits, it can recognise a deferred tax asset to the extent that it is probable that that taxable profits will be available against which those losses can be utilised.
Note 17 to the accounts states “The Group has recognised a Deferred Tax Asset of £889,000 (2017: Nil) due to budgeted future profits of the business beyond 2019” and that it has been calculated using a tax rate of 17%, which by my calculations would require future taxable profits of some £5.2m.
No such deferred tax asset was recognised in any of the previous 5 years (2013 -2017) despite all of the MOUs and the Iran LOI. So that would indicate a significant change in the outlook by both the BoD and importantly the auditors. It would also indicate that recognition does not take place on the basis of a MOU or LOI. Therefore I believe it unlikely that any potential profit for Tema would be included in the forecast of future taxable profits of £5.2m when the results were announced some three weeks prior to the receipt of the Tema LOI.
As at the end of 2017 WSG had 12.6m of losses to be carried forward, plus losses carried forward in 2018 of £0.4m, giving a total of £13m of which we have now recognised an asset in respect of £5.2m.
Obviously we have the profit on the balance of revenue from the ME teach contract of £2.2M and the SE Asia tech contract of $3.2m (£2.7m), say £5m total, which using a margin of say 40% would be a contribution of £2m to the £5.2m, but given we have had taxable losses of between £0.2m and £0.5m for each of the last 7 years, it looks like both the BoD and auditors see a significant change of fortunes even before Tema is taken into account.
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