Depreciation question: computer etc.

clifface

Hi everyone,

I'd appreciate any advice you could pass on regarding how to calculate depreciation / capital write off.

I bought a computer in 2008 and am currently trying to figure out how to calculate it as a capital write off / depreciation. Likewise, my job requires the purchase of a number of books. How do I calculate these? I understand that I shouldn't put them down as "Other Expenses".

I am self employed.

Thanks!!

Up

A computer should be depreciated over 3 years evenly as this is its expected useful life.
For books they should go down as work materials. This is for accountancy purposes.

If you are doing self assessment then the computer is given a capital allowance of 12.5% over 8 years under office equipment. The books will be given a full deduction in your profit and loss account.

clifface

so to clarify:
- Books bought during the relevant tax year should be totted up and then included under 135. Other Expenses.
- The computer should go under capital write off at 12.5% over 12 years.
- What happens in say 3 years when the computer needs to be replaced??
- Also, can I deduct books which I already own but which I regularly use as part of my work even though they were bought previous to the tax year for which I am submitting a return? Should they go under capital write off and if so, do I start the 12.5% calculation from this year?

Thanks!!

TaxingTimes

When preparing acounts, depreciate item over useful life - computers usually 3 years.

Accounts then need to be adjusted for tax - disallow depreciation, but calculate Capital Allowances at 12.5% straight line over 8 years to get your taxable profit.

Re books - it is usual to set a deminimus for Capital Allowances e.g. €100 -€200 depending on type of business, and all amounts (including books) under this amount to be shown as Revenue expenses and through the profit and loss account rather than capitalised.

Re books bought in previous year, if not included in previous accounts in error, you can include them in this year

air

What's the benefit of having one set of accounts which writes off the computer over 3 years and another that writes it off over 8?
Why not just prepare one set of account in accordance with the tax standards?

TaxingTimes

A set of accounts should show the position using set accounting standards - this shows the "true" position (e.g. depreciating assets over their useful life).

However, you do not pay tax on the profit per accounts, but on the profit as adjusted for tax purposes.

Banks etc., like to see accounts prepared in accordance with accounting standards.

Therefore you should prepare accounts, and then adjust for tax.

air

Fair enough, sounds to me however that the revenue's standards just need adjusting in this case.
It's unfair to force a company to hold off on writing off an asset for another 5 years after it has ceased to be of use - perhaps even having been disposed of.

You can be sure that if it was the other way around the revenue would be quick to change their rates of DEP. It also creates unncecessary complication and only adds to the administration / accounting costs of a company with no benefit to the company.

TaxingTimes

Nobody ever said that taxes are fair!!!!

Unfortunately, that is just the way it is...........

But, there are special Capital Allowance rules on the disposal of assets - to create Balancing Charges or Liabilities - so you don't loose out.

Legend100

and if capital allownaces were based on useful life, i wouldnt want to be doing that tax comp

the 12.5% system is very manageable rather than having different rates for different assets

air

Fair enough so, you can write off individual assets before the 8 years if they are disposed of then? That sounds reasonable enough.