Depreciation calculation for reducing corporation tax

[cjcass]

Hi,
As part of a Ltd company startup I have purchased office equipment (PC's, laptops, desks etc.) totaling £3,000 and am depreciating all items over 5 years. The items weren't purchased all in the same year so the annual depreciation in my P&L accounts will differ. I am now going through my tax returns for the first year of trading (2016-17). My profit before tax for the year is £500. I will shortly be going into the computations part of the online submission and am aware that I have the opportunity to reduce my corporation tax using a calculation for depreciation - how would this be calculated in my case?
Any help would be much appreciated.

 

[MyAccountantOnline]

Depreciation isn't an allowable expense for tax purposes.

You can claim capital allowances on the assets instead.

 

[cjcass]

thanks for your response
how would that work, what would the calculation be?

 

[MyAccountantOnline]

Have a read here it should help.

If they are small items you could consider charging them to the P&L.

 

[DontAsk]

Looking at https://www.gov.uk/capital-allowances-sell-asset what happens if an item you claimed capital allowance on is simply scrapped? It's not one of the options for disposing.

 

[cjcass]

there are 6 items ranging from £350 to £670

 

[STDFR33]

I would capitalise the items.

 

[cjcass]

I've spent many hours wading through HMRC pages already to no avail, can you advise what the calculation would be?

 

[cjcass]

help on this query from anyone on here would be much appreciated

 

[cjcass]

further info... I'm on a flat rate VAT scheme, does this prevent me being able to claim 'capital allowances' off my corporation tax from my fixed assets, or is that a separate matter?

 

[Scalloway]

The flat rate VAT scheme has no effect on what you claim for Corporation tax. UK.gov advice on capital allowances is here.

https://www.gov.uk/capital-allowances

 

[cjcass]

Thanks re. the VAT info.
I've been wading through the HMRC info and nowhere can I find an example calculation that's applicable to my situation - can you shed any light on how I would calculate the capital allowances in my case?

 

[@aiteoconsulting]

Just claim the full cost under your annual investment allowance

https://www.gov.uk/capital-allowances/annual-investment-allowance

 

[Scalloway]

You can only claim AIA in the year the assets were bought. The OP has items that were bought in earlier years.

Calculate the capital allowances as follows.

Cost of assets bought .....£X,XXX
Less AIA for this year.........(£XXX)
...............................................XXXX
WDA at 18%............................XXX
Carry forward to next year..£XXX

Put the AIA and WDA figures in your return.

 

[STDFR33]

You can only claim AIA in the year the assets were bought. The OP has items that were bought in earlier years.

Calculate the capital allowances as follows.

Cost of assets bought .....£X,XXX
Less AIA for this year.........(£XXX)
...............................................XXXX
WDA at 18%............................XXX
Carry forward to next year..£XXX

Put the AIA and WDA figures in your return.

I don’t disagree with your treatment.

But if the company bought the assets in previous years, one would like to know how they were treated at the time and why the tax deduction on those items is only being considered now.

I think for the profits involved, the OP has made things unnecessarily complicated by trading through a company.

 

[CaMaNo]

"First year of trading" I would expect assets bought in previous years are introduced as pre trading expenses?

 

[cjcass]

Hi,
Thanks for all your input, here is some more information to complete the picture and make it easier to determine what I should do.
The items were purchased specifically for the business between 2012-15 during a lengthy business development & setup (pre-trading). The business got it's first customer in 2016 and started trading. 2016-17 will be the first full accounts for the business being submitted. For info the profit of £500 is just trading year 1 with a big setup cost recovery, year 2 net profit will be c.£30k.
Currently, I have calculated the depreciation as an expense in 2016-17 and at the end of 2016-17 there will be £1,500 left to depreciate through to 2018-19.
Any further advice much appreciated.

 

[cjcass]

to confirm... when I say that I have 'calculated the depreciation as an expense in 2016-17', I mean that I currently have them sat in 'Depreciation and other amounts written off assets' in my P&L submission to HMRC (not yet submitted).

 

[TheCyclingProgrammer]

Depreciation is an expense in your accounts but remember to add it back on when calculating your taxable profit because as mentioned above it is not tax deductible.

You can claim AIA on anything bought in the current year which allows you to deduct the whole cost when calculating your tax.

Write down allowances for the rest as outlined by Scalloway above. I believe if your total asset pool is £1000 or less you can claim the entire balance under the small pools allowance.

Even after claiming capital allowances on the full amount via either AIA, WDA or SPA as above you will continue to depreciate these each year in your accounts and you’ll have to add back depreciation each year when calculating your tax.

 

[TheCyclingProgrammer]

Read this:
https://www.gov.uk/work-out-capital-allowances/work-out-what-you-can-claim

 

[cjcass]

ok, thanks. on reading the notes that HMRC provide and the comments on here, it would appear that the relevant option in my case is using WDA. In this case my submission currently looks like this:

Written down value of main pool brought forward = £1,500
(this figure is what I have left to depreciate after 2016-17)
Writing down allowance claimed from main pool = £270
(the 18% that will be deducted from my corporation tax)

If I were to input the original cost of the items under WDA (as I haven't claimed any capital allowances on these items to date), would this be wrong? see below...

Written down value of main pool brought forward = £3,000
(this figure is the original cost of items purchased 2012-15)
Writing down allowance claimed from main pool = £540
(the 18% that will be deducted from my corporation tax)

 

[Scalloway]

Written down value of main pool brought forward = £3,000
(this figure is the original cost of items purchased 2012-15)
Writing down allowance claimed from main pool = £540
(the 18% that will be deducted from my corporation tax)

That is correct.

 

[cjcass]

just to confirm - is it the first or second option that is correct?

 

[Scalloway]

The second. That is why I quoted it.