Change of HMRC's qualification of assets' depreciation for Corp Tax relief?

Discussion in 'Accounts & Finance' started by DickM, Aug 10, 2012.

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  1. DickM

    DickM UKBF Regular Free Member

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    I agreed recently to step out of retirement to help a new Ltd Co director with his first year's Co accounts Corp Tax submission to HMRC.
    He had already done a DIY with his Co House accounts submission, and there was at least one glaring omission: no share capital mentioned.
    Also, he had claimed depreciation for his Co's new computer.

    Of course, these items impacted on the HMRC submission. The share capital being an obvious over sight, but when it came to the asset depreciation - I too was caught out!
    Can anyone advise when HMRC changed the ground rules with regard to the type of assets that qualify for CT relief on their depreciation?
    As I interpreted from the on-line CT600 that now (e.g.) only environmentally friendly assets' depreciation qualifies for CT relief ........... so the depreciation the director claimed for his Co's computer in his Co House accounts (that was accepted by Co House - as his first year submission status clearly shows this on their web status) is out of step with HMRC's CT600 requirements; as his computer is not environmentally friendly!
    I imagine that this HMRC sea-change in allowable "tax free" assets depreciation, will cause (if it has not already) quite a stir among the directors of the many small/medium sized Ltd Companies the length & breadth of the UK!
    Suggest anyone concerned about this, checks it out @: http://www.hmrc.gov.uk/ct/forms-rates/claims/capital-allowance.htm
    I'm also surprised that there has not been an outcry about this in the UK press - perhaps it has not registered yet ;)
     
    Posted: Aug 10, 2012 By: DickM Member since: Oct 3, 2007
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  2. David Griffiths

    David Griffiths UKBF Legend Full Member - Verified Business

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    That link doen't point to anything specific so it's not possible to see where you are gettting this information from

    There have been no changes in the categories of assets qualifying for AIA and capital allowances. The level of AIA is now reduced to £25k, and writing down allowances are now 18% and 8%

    There have been enhanced alllowances for green purchases for some time but for smaller companies they have been made irrelevant by high levels of AIA

    There hasn't been an outcry because nothing has changed - unless you are possibly the first person to find something of course.
     
    Posted: Aug 10, 2012 By: David Griffiths Member since: Jun 21, 2008
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  3. SBlundell

    SBlundell UKBF Enthusiast Full Member - Verified Business

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    Unless I'm completely mis-reading that, I think you've got some confusion going on there ****M.

    Accounting profit (i.e. including a provision for depreciation) is only the starting point for tax calculations.

    'Depreciation' per the accounts is not a tax allowable expense, so in computing profits chargeable to CT you would have to add back any depreciation expenses in the accounting profit (i.e whatever he'd provided on the new PC in this year's accounts).

    HMRC then allow 'capital allowances' instead of depreciation at their own pre-determined rate on most capital items (plant, office equipment, motor vehicles etc but not buildings - although I'm generalising :)). From April 2012 this is at a rate of 18% (reducing balance), previously 20%. You would then deduct any capital allowances you're allowed off the calculation of 'profits' (i.e. accounting profit + depreciation charged in the accounts - capital allowances).

    To confuse matters further, you often also get additional allowances in the year of purchase of assets, most commonly a £25k 'annual investment allowance' for all assets but also 100% first year allowances for some 'eco-friendly' stuff.

    So the allowances are nothing new - they have just allowed additional rates for 'green' stuff.

    I hope that clears up a few things for you - however I would suggest maybe the new director would be best to speak to an accountant to make sure they're not missing out on other things?
     
    Posted: Aug 10, 2012 By: SBlundell Member since: Aug 10, 2011
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  4. DickM

    DickM UKBF Regular Free Member

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    Thanks David for your response which encompasses the complete story, and is also detailed @ this HMRC link: http://www.hmrc.gov.uk/manuals/camanual/CA23087.htm

    FYI, I was using straight line depreciation previously, with the new office computer example: 20% a year (for 5 years).
     
    Posted: Aug 10, 2012 By: DickM Member since: Oct 3, 2007
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  5. DickM

    DickM UKBF Regular Free Member

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    Thanks for your input - fyi, it was the "green stuff" that threw me, thinking it took precedence (or replaced) the established AIA ground rules, which clearly is not the case. However, I can assure you that my client is "not missing out on any other things", and with his new Company's small first year revenue of £8K (on his own admission: could not afford a "high street accountant"). In fact most clients I've had the pleasure to deal with over the last few years, allegedly can't afford a book-keeper ............... more's the pity! :eek:
     
    Posted: Aug 10, 2012 By: DickM Member since: Oct 3, 2007
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  6. SBlundell

    SBlundell UKBF Enthusiast Full Member - Verified Business

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    Ah ok - it was the depreciation comments that threw me, apologies.

    They're quite generous for 'green' things. Shame 2litre petrol cars don't count ;).
     
    Posted: Aug 10, 2012 By: SBlundell Member since: Aug 10, 2011
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