Depreciation and capital allowances

[8thegeorge]

I am a sole trader. I have my car and computer equipment as part of my business. I use Sage Instant Accounts. Is there any point in depreciating items such as computers and cars in my accounts if the depreciation is not tax allowable? I seem to remember that any depreciation has to be added back in to the profit & loss calculation before the result is used for tax purposes but capital allowances are claimable under Self Assessment. I am a bit confused as to the difference here. Any help/advice gratefully received.

[Instinctive]

Accounts are primarily prepared for commercial reasons. Apart from the taxman, banks and lenders and creditors may need to use the accounts to see how the business is performing. Depreciation should be provided in the accounts so that the accounts show a true commercial profit. Without depreciation, the accounts will not show 'true and fair view'.

It is correct that the tax office will effectively ignore this depreciation and substitute it by capital allowances.

Ramnik

[8thegeorge]

Thank you for help so far. That sorts out my query re depreciation. I am still a bit confused however re capital allowances and the self assessment form. If at year end 04/05 my car is worth £8000 and I calculate capital allowance @25% (£2000) then if the cap allowance figure goes into box 3.16 on the SA form do I put the £8000 value into box 3.99 (plant etc assets) or do I enter the value after deduction of the 25% (£6000)?

Many thanks

[Instinctive]

Assuming that you are preparing your 1st accounts, the asset figure on Box 3.99 of the Balance Sheet will be the cost less the depreciation entered at Box 3.62 of the Profit & Loss account.

Balance Sheets are not mandatory. You only complete this if have prepared one. It is not easy for lay persons to prepare and balance the Balance Sheet.

The depreciation at box 3.62 is added back by entering at box 3.44 and included in the total add-back figure at box 3.66 and eventually included in the total additions to profit figure at box 3.69

Capital Allowances for the car (as reduced by private use) is entered at box 3.14, included in the total at box 3.22, transferred to box 3.70 and eventually included in total deductions from profit figure at box 3.72.

Ramnik

[8thegeorge]

Ramnik

Thank you very much for speedy and very clear answer. It now makes sense!

Regards
TW