expensing low value capital items

expensing low value capital items

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When low value items are written off directly to the P&L, can they be ignored in the tax comp or does a general pool have to be set up?
With the AIA the tax effect is the same but suspect have to be shown as AIA claim in tax comp and on CT600.

Can someone please clarify for me.

thanks
Jolly

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By thomas34
22nd Apr 2009 15:27

Jolly
Going forward you'll need to decide in your own mind what you deem to be capital - a screwdriver is technically capital but common sense suggests that this would fall into loose tools and be classed as revenue. It's more a function of its lifespan rather than its value. Anything which, say, lasts up to a year (because it wears out) I put into loose tools, everything else into capital. Some of my clients get through electric drills incredibly quickly so I write these off.

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By User deleted
22nd Apr 2009 14:44

It depends
As a general rule, HMRC have no concept of materiality so the strictly correct position is that if expenditure is capital it is capital and should be treated as such regardless of amount.

However (and this is where the 'it depends' comes in) I've seen plenty of Inspectors who have been prepared to take a pragamatic view over small amounts, particularly if no other adjustments are required. On the other hand, I've seen a few who dug their heels in - it just wasn't worth the hassle of arguing given that capital vs. revenue is usually just a timing issue.

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By lja20
22nd Apr 2009 13:49

hi - maybe I think i need to rephrase my question..
Thanks for your comments - yes I agree with your posting, what I am querying is does HMRC recognise that low value items are written off directly to P&L or do they require you to set them up in a general pool? (Just trying to avoid extra work!)

THe net impact under AIA is the same - the immediate write off is effectively 100% depreciation added back in the comp, with AIA (at 100%) taken as the deduction

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By User deleted
22nd Apr 2009 13:23

Answer
For capital items which are low in value and are expensed through the Profit and Loss A/c you don't show that anywhere in the tax calculation.
This is because you have already claimed the benefit by reducing your profits by the relevant amount,before you actually move onto the Tax calculation.
AIA is a different thing,as it will be shown in the Tax Calculation and CT600 separately like Capital Allowances.But bear in mind,it will be classifed as a Fixed Asset,hence you will have to provide for depreciation in the P&L and add it back in the Tax Calculation.Reflect it in the balance sheet as well as Accumulated Depreciation.
Hope that answers the question,if not do let me know.
Regads
Mehran
Bsc(Hons)

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