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Capital Allowances & Depreciation

  • 10-02-2012 2:09pm
    #1
    MAR86
    Registered Users, Registered Users 2 Posts: 59 ✭✭


    Hi All,

    I am currently studying with IATI but I have some issues understanding the difference between them.

    Depreciation - let's say you depreciate a computer at 25% per year. The value is then included in Income Tax computation under expenses.

    Capital allowances - is this 12.5%? and where do you include it?

    Does this means you claim expenses of 25% and capital allowances of 12.5%?

    I am very confused and the teacher said we don't do capital allowances this year so i shouldn't be worried for the moment.

    Thanks in advance!!!!


Comments

  • #2
    maddogcollins
    Registered Users, Registered Users 2 Posts: 998 ✭✭✭maddogcollins


    Depreciation is included in your net profit calculation, however for Tax purposes it is an add back.

    Net Profit 10,000
    + Depreciation 300
    = Taxable profit 10,300

    You then claim Capital Allowances in the tax return. This avoids double counting. One is for accounting purposes and the other is taxation purposes.


  • #3
    MAR86
    Registered Users, Registered Users 2 Posts: 59 ✭✭MAR86


    Alright, that's grand, thanks a lot!

    One more thing and I am done, do use the same rate for both of them..12.5%?

    I mean, the lecturer said the usually computers are depreciated over 3 or 4 years, which make me think that they don't have the same rate.


  • #4
    nompere
    Registered Users, Registered Users 2 Posts: 1,678 ✭✭✭nompere


    Revenue set rates for capital allowances. Companies and other businesses tend to depreciate assets over their useful lives - which may not be the same thing.

    It's quite common in many accountancy firms to use the capital allowance rates for depreciation, as it means the fixed assets get written off over thr same period in the accounts as well as for tax.


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