Deferred Tax

Deferred Tax

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Hi Really appreciate some feedback, 

I`m preparing accounts for a limited company by guarantee, its main source of income is through grants, other income is very minimum, below £4,000.

The depreciation charges are in the region of £3,500. For tax purposes, depreciation is non deductible, but as the income was from grants through which the depreciation has been charged, am i right in thinking the adjustment for the tax calculation will not require to add back depreciation? as the deduction of depreciation was from grant income which is non taxable income. The grants were given for all running costs  and any unspent grant would be a liability and taken to deferred income as it would either have to be repaid, or used in the next year. (this is the grants terms)

I did think that depreciation  should be added back for tax purposes and capital allowances could be claimed, hence resulting in a deferred tax charge. However I`m still determined to agree to it not being deducted due to the income it was deducted from being non taxable. Had depreciated charges not incurred, any unspent grant would have gone to deferred income, and not been liable for tax.

Thanks in advance

Replies (4)

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By User deleted
26th Feb 2013 09:33

Two questions

On what basis do you consider the grant income to be non-taxable?

Why would you consider that depreciation, which is never allowable for tax purposes in the UK, should not be added back?

Without any further info about the company's activities and source of grants etc, I'd say the correct treatment is to add back the depreciation and the grant income (provided that the income is indeed non-taxable).

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Replying to lionofludesch:
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By andy.partridge
26th Feb 2013 10:14

What about . . . . ?

BKD wrote:

Why would you consider that depreciation, which is never allowable for tax purposes in the UK, should not be added back?

What about leased assets under SSAP21?

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By User deleted
26th Feb 2013 14:38

Fair point, Andy

I was thinking about the general rule about depreciation, didn't want to complicate things by discussing special rules for particular assets (that's my story, and I'm sticking to it).

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By Abacusms
26th Feb 2013 22:31

Thanks

Absolutely right on the depreciation, i woke up this morning thinking, what was i thinking?

The grants terms are to spend the full amount by the year end, and any surplus to be repaid back to the funder, or used in the following year with agreement from the funder. If £20,000 is unspent, then the funders will agree for £20,000 to be spent the following year for a specific expenditure. ie salaries. The company is not for profit, limited by guarantee

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