I'm trying to understand how Depreciation and AIA relate to each other and I think understand it, but I'd be very greatful if somebody could confirm I'm on the right track.
Here's how I understand it:
Depreciation is an accounting concept, AIA is a tax concept.
Whilst AIA allows the entire cost of eligible assets (up to £50,000 a year) to be claimed against tax in the first year, the assets still need to be depreciated as usual for accounting purposes.
If AIA is applied to an asset, the depreciation expense for that asset cannot be deducted from tax in following years, because it has already been claimed fully.
Please could somebody let me know if this is correct? Any help much appreciated, Rangi
that's pretty much right. Depreciation is an accounting concept but when you go to do a tax computation, you will always start with your profit per the accounts and then make various add backs, one of which is always depreciation. You can then deduct capital allowances, AIA etc to get to the taxable profit. So it may seem odd that you still have a depreciating asset in the accounts when there is no such asset to claim capital allowances on in yhe CA pools.
