Depreciation is an accounting concept to give a true and fair view of the entities affairs.
Depreciation is an integral part of one of the fundamental concepts (The matching concept (see FRS18 and also FRS15)) where expenditure is matched against income in the period to which it relates.
However, for tax computations you ignore the depreciation used in your accounts and use capital allowances / AIA (Annual Investment Allowance) instead.
Thats why the tax very rarely matches up to the calculated profit of a company.
Hope that this helps,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
If the equipment is a few years old then AIA wont be applicable. Without any previous info you could start from when they were bought and work out what allowances are likely to have been claimed each year to get to a current value and then take your allowances from that.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
sorry that I didn't reply immediately but being a busy little bee today.
Jenny has hit the nail on the head though. If you don't have the tax returns then if possible work backwards to purchase prices.
The likelihood is that for the equipment the AIA will have been taken in it's entirety in the year of purchase. The depreciation is then only a catch up excercise with the financial reality.
The car may be more problematic. Is it registered in the companies name? What is the division of usage? Is it run through the company or does the owner take the mileage allowance?
I think that really you could do with having a sit down with the owner of the business and / or talk to the previous bookkeeper.
It is important that somewhere the company keeps a record as to how their tax was calculated for each year.
You might want to inform the owners of the business that HMRC can go back 7 years (6 plus current) and if anything is found to be amiss that they can actually go back all the way to inception of the company.
Just mentioning that may prompt them to tell you in which back drawer all of the annual files are stored in.
Good luck with this one. I know that it's a real pain when you have clients who only give you half of the facts that you actually need.
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
