Hi have a new client who is a sole trader and has had his accountant prepare accounts for previous years.
The accountant has included depreciation each year in the accounts. And then added on the depreciation and taken off the capital allowances for tax purposes.
I have the bought forward balances for capital allowances, is it OK to use these figures and not put in an amount for depreciation each year.
In the past as my clients have been very small sole traders I have used just deducted the capital allowance figure and not put in deprecaition in the accounts.
depreciation shows the rate at which the asset is consumed by the company and as rightly identified already is quite seperate to the rate at which tax relief is normally allowable against the asset.
On occassion the two may coincidentally travel the same path but they should never be confused.
Where an asset is being depreciated all assets of the same category should be depreciated using the same method.
Whilst there are other alternatives to depreciation (such as fair value), capitalisation figures cannot be used for depreciation purposes as they are something quite different.
kind regards,
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.
Hi, for some small traders, I will invoice them for what I term "tax accounts" - which just means that they are sufficient for their self assessment. In those circumstances, I am unlikely to be completing a balance sheet. The product I will be supplying will be somewhat leaner, but it will fulfil his immediate wishes.
There is always the risk that an outside agency, say a bank manager will want to see a full set of accounts at some point. This is why I distinguish what I am supplying on the invoice. You have to make sure the client knows that in those circumstances, you may have to re-visit the job and bill them again.
regards
-- Edited by Don Tax on Sunday 31st of July 2011 12:53:47 PM
You need to be including brought forward depreciation in the bookkeeping, rather than brought forward capital allowances.
If you start using b/fwd capital allowances, then the NBV in the accounts will be incorrect if the client has claimed different capital allowances to the depreciation.
(eg. it's quite common to have "accelerated capital allowances", where the asset has a lower "tax written down" value than it's "net book value". Also, since the advent of "Annual Investment Allowance, businesses can sometimes write off 100% of the asset for tax purposes, but would still be depreciating the asset in their bookkeeping/accounts)
