Annual Investment Allowance

[missright]

Hi all

I am just completing my corporation tax return and wanted to check i was dealing with capital allowances and depreciation correctly.

- My company purchased assets of £1,000
- Depreciation of £100 was charged to the P&L (10% pa)

Am i correct in:

- claiming £1,000 AIA deduction
- adding back £100 depreciation each year for the next 10 years in relation to these assets

Any clarification would be much appreciated!

[taxattack]

Hi all

I am just completing my corporation tax return and wanted to check i was dealing with capital allowances and depreciation correctly.

- My company purchased assets of £1,000
- Depreciation of £100 was charged to the P&L (10% pa)

Am i correct in:

- claiming £1,000 AIA deduction
- adding back £100 depreciation each year for the next 10 years in relation to these assets

Any clarification would be much appreciated!

Not sure about "adding back £100 depreciation each year for the next 10 years in relation to these assets". If you mean "continue to charge 10% depreciation each year", then I would agree.

Technically you should account for the "deferred tax" - the tax on the difference between the accounting profit and the taxable profit, which will unwind over the period of the depreciation - but you won't be alone if you don't.

Chris

[elainec100@cheapaccounting]

yes you add back depreciation to the profit and then deduct your capital allowances in this case the AIA.

[missright]

Many thanks for your prompt replies!

With regards to the depreciation, what i meant to say was that although I can claim a deduction for the full cost of the assets this year via the AIA, I am only adding back the depreciation as it is charged to the P&L account over the next 10 years ie £100 a year.

Is my understanding correct?

[Jenni384]

As an example, if you're depreciating 10% straight line and assuming no other capital transactions:

Year one, depreciation 100, AIA 1000
Profit of, say £12000
Add depn £100
Less AIA -£1000
Taxable profit £11100

Year 2
Taxable profit, say £12000
Add depn £100
Less Capital allowances Nil
Taxable profit £12100

Year 3
Taxable profit, say £12000
Add depn £100
Less Capital allowances Nil
Taxable profit £12100

(Don't forget to put deferred tax in the accounts)