Depreciation Question

Chipboard

I'd appreciate some guidance on this;

If your doing accounts for a small sole trader, how much depreciation can you include. I used to think that you depreciated cars over 5 years and computers over (say) 3 years, but I read something in yesterdays Sunday Business Post about machinery and plant being included at 12.5% of cost (Your Money Page 4 section 109). Does this mean that you depreciate everything on a straightline basis at 12.5% p.a?

If this is the case, can you go on depreciating for 8 years (seems awful long)?

Also, if you sell an asset after say 3 years and you get less than its then book value, can you expense the difference as a loss on sale in the P&L?

Thanks in advance for any help.

MBateson

You're mixing depreciation and capital allowances. Depreciation can be any length and isn't tax deductible, it's an accounting concept. capital allowances are the tax deduction you are allowed for capital items and are fixed over 8 years (in the main)

Yes, you get a balancing allowance if you sell for less than the tax written value of the asset.

Chipboard

MBateson wrote: »

You're mixing depreciation and capital allowances. Depreciation can be any length and isn't tax deductible, it's an accounting concept. capital allowances are the tax deduction you are allowed for capital items and are fixed over 8 years (in the main)

Yes, you get a balancing allowance if you sell for less than the tax written value of the asset.

I just want to do these quick and dirty so I was going to just include the capital allowance of 12.5% as depreciation so that the net profit figure is the assessable profit.

Can you tell me, is the balancing allowance equal to the loss e.g. if the business purchased a computer in 2006 for €1,000 and sells it 2 years later for €400 when it has a book value of €750 (using the 12.5% p.a.), can the €350 loss be included in the P&L as a loss on sale in the year of sale?

kennyb3

The balancing allowance should be added to wear and tear and entered under capital allowances just so you know.

MBateson

Yes, you can do that, many small businesses just have the depreciation rate the same as the capital allowance rate for convenience. However, capital allowances have their own box on the Accounts Menu in the tax return. Therefore your profit or loss should exclude the depreciation or wear and tear charge for the year as it goes into its own box.

You can include the loss as you say for the accounts but the balancing allowance goes into the capital allowance box as above, if it's a balancing charge (a profit on disposal), it has a separate box.

Hope I've explained that okay.

Chipboard

Thanks very much guys.