Corporation Tax and Fixed Assets

[knight007]

I've finished my first year trading through a limited company.
Accountant has just done the accounts and he's put some fixed assets on there:

1.My Old laptop I sold to the company at £100.00
2.My printer I sold to the company at £150.00
3.New Tablet PC the company purchased at £400.00

My accountant has depreciated these by 25%.

Is it really required to declare the old laptop and printer and depreciate them? Or can they simply be written off in full in the first year accounts?

[Jessica@WhiteFieldTax]

Accounting standards would require them to be written off over useful life, 25% is the bog standard proxy for that. We all do it.

For Corporation Tax up to £25k pa of spend on assets is written off in full, via Annaul Investment Allownace.

This means your taxable profit will be lower than your accounting profit this year.

In future years your taxable profit will be higher than your accounting profit (as the assets are still being depreciated in the new accounts, but you've had the tax write off) , unless you spend more on assets next year, etc.

[knight007]

Hi Jessica,

I don't quite follow.

My sales for the period are £98,831
My expenses are £29,641
The depreciation on the assets is £162 (at 25%)

This gives a net profit of £69,028

My accountant has calculated my corporation tax to be £13,738. Can you confirm this is correct?
I would have thought it would be 20% of £69,028. Or is this due to 'rounding' ?

[Sockpuppet]

Without knowing your accounting period and year it would be impossible to say - infact without looking at your accounts it would be impossible to say.

Not all expenses are allowable against corporation tax

[captainham]

You can also define yourself what value constitutes an asset, e.g., anything under £500 is an expense, above that is an asset, etc.

[xoggoth]

Profit for company accounts purposes and for corporation tax purposes are not the same. Depreciation costs are added back in to the former and then the full annual investment allowance is deducted to give you the latter figure. Some other things if applicable, like fines and penalties etc, are also treated differently.

I make it 13708 = 0.2*(69028+162-650) but £30 on those profits is hardly significant.

[northernladuk]

Profit for company accounts purposes and for corporation tax purposes are not the same. Depreciation costs are added back in to the former and then the full annual investment allowance is deducted to give you the latter figure. Some other things if applicable, like fines and penalties etc, are also treated differently.

I make it 13708 = 0.2*(69028+162-650) but £30 on those profits is hardly significant.

Waits for lithium to post in 10, 9, 8 ..........

[Jessica@WhiteFieldTax]

I guess the figures are something like:

Accounts profit £69,028
Add back depreciation £162
Deduct AIA £650
Taxable Profit £68,540
CT at 20% £13,708

(Sorry, I've just seen xoggoth said the same)

Why its £30 out I don't know, prolly a add back on something else, eg entertaining.

To check further you need a copy of your tax computation. Your accountant should provide that on request, if not automatically.

HTH

[Maslins]

I'd also agree with what captainham said. We get clients to expense items below £500, often below £1k too...though as mentioned by other posters doing so wouldn't reduce your tax liability. It's more just keeping things simple, avoiding tracking the net book value over several years of piddly things like a £4.95 mouse.

HMRC don't care anymore as (ignoring some niche circumstances) the tax liability won't change regardless of whether you capitalise it or not due to AIA.

[FarmerPalmer]

PCG membership (for example) is not an allowable expense for tax purposes, and so tax would still be required to be paid on that amount.