Depreciation / capital allowance rate

**boredsenseless** · 18 October 2006, 07:14

Originally posted by MikeP

G'Day,
One more question:
Year end time, and I've just been informed that 25% it is and so it shall be. "30% is not an option".

Seems a bit low for depreciating IT kit. I know larger corps depreciate at 30 or 33%, and especially with computers 40 or 50% is also quite acceptable (and realistic IMHO).

Is 25% a good thing from any long term view? Right now my laptop is just under 2 years old and I'll be lucky to get a third of purchase price off ebay. I asked them but got the answer that it "tends to always be shown as 25%".

Beginning to wonder whether it's time to change accountants, things have been sliding downhill for a while...

Dpereciation is a strange concept there are no right and wrong answers, only guidelines witin which HMRC doesn't question. 25% is considered a good catch all for all items.

If you can make a good reason why the depreciation should be more and can document it and are willing to argue your case then go with the higher figure.

One word of caution though is that depreciation isn't meant to track the value of the item, rather it is intended to spread the asset cost over its useful life, therefore if you upped the deprectiation to 50% expect to be asked why you didn't replace it after 2 years.

If you leave it at 25% and use it for 5 years they won't ask why though.

If you are going to be contracting for 4 years you may as well leave it at 25% as ultimately it will make no difference.

**ASB** · 18 October 2006, 09:15

As said you can use whatever figure you want if you are prepared to argue it, since it's on a reducing figure it never reaches zero anyway. AIUI the "accepted" figures are the "easy life" option. However where it is relevant is in terms of the CT calculation, I believe only the normal figures are allowed for CT purposes, thus you have to keep track of this which can cause some headaches.

When the asset is sold then there is either a taxable profit or a chargeable loss based on what it is realised for and it's written down value.

In the case of IT equipment then I thought there was still the "normal" 50% first year rate available anyway.

Also every couple of years it is not uncommon to revalue the fixed assets and adjust accordingly based on their actual anticpated value. It's some time since we did this, but if memory serves then this was treated as an exception item in the P+L thus getting the written down value and written down value for CT purposes back level.

**tim123** · 18 October 2006, 09:45

The amount that you depreciate an item for the P&L and the amount that you depreciate for tax are not necessarly the same.

You have reasonably complete freedom for the P&L, the tax deductions are limited by statute.

tim

**MikeP** · 18 October 2006, 16:40

Thanks, pretty much clears it up then, thought as much but was confused by the accountant telling me it was not an option.

**mauryballstein** · 19 October 2006, 13:14

Originally posted by ASB

When the asset is sold then there is either a taxable profit or a chargeable loss based on what it is realised for and it's written down value.

In the case of IT equipment then I thought there was still the "normal" 50% first year rate available anyway.

The chargeable gain is not based on the WDV (or NBV) but the sale price less cost net of capital allowances.

Small co's can claim either 40% or 50% first year allowance (FYA) and then a 25% reducing balance - remember though that depreciation is usually but not always straight line, although you need to remain consistent within any particular class of asset.

**Nixon Williams** · 19 October 2006, 13:21

Another way the Revenue trys to confuse.

Depreciation acn be anything you feel is appropriate for your business. Depreciation is not an allowable expense aginst Corporation Tax.

In its place the Revenue allows Capital Allowances. These are usually 25% per annum on a reducing balance. Currently in the first year (to 31/03/07) the Revenue allows 50%, (this may be retained in the Budget next year).

I hope this helps

Alan

**ASB** · 19 October 2006, 20:10

Originally posted by mauryballstein

The chargeable gain is not based on the WDV (or NBV) but the sale price less cost net of capital allowances.

Small co's can claim either 40% or 50% first year allowance (FYA) and then a 25% reducing balance - remember though that depreciation is usually but not always straight line, although you need to remain consistent within any particular class of asset.

That is precisely what I was trying (and clearly failed

) to say.

**nucastle** · 1 April 2008, 11:39

Quick question on this since im in the process of doing my own accounts ...

.... Say i bought a new PC a few weeks back, even though its only a few weeks old can i still charge 50% of the value of it against corporation tax for last years accounts?

Ditto for my company laptop which i bought a few months into my trading year - does the point at which it was bought affect this, or is it as simple as saying that if it fell within the trading year than it can be charged 50% of its value against corp tax etc etc.

**philip@wellwoodhoyle** · 1 April 2008, 12:56

Yes, the 50% FYA is available regardless of the length of accounting period or the timing of the asset, so in both your cases 50% FYA is available.

It is also a good time to mention the new capital allowances rules which have just come in for limited companies today. There is a new allowance of 100% for the first £50k of equipment bought each year, the WDA is reduced from 25% to 20%, but you can write off in full any balance of tax written down value under £1,000. Quite a change! Just watch out for accounting periods straddling 1/4/08 as there are quite complicated transition rules - if you have say a 30 April 2008 year end, you can only use the new allowance on £4,167 of equipment bought in April - the £50k is time apportioned - any excess only gets the new 20% WDA. Should be much simpler and more beneficial once the straddling periods are over and done with.

Depreciation / capital allowance rate