Tax Return Form
When calculating the net taxable profit of a business the tax system add back to the profit shown in the business accounts any depreciation charges the business has made in the preparation of the accounts. The tax system then deducts the capital allowances from the net profit made by the business and shown on the self assessment tax return form to arrive at the actual net taxable profit, those tax allowances being according to a fixed set of rules applicable for the tax year.
The rate of first year allowance for small businesses has changed each year from 2004-05 to 2007-08 starting in 2004-05 at 40%, rising to 50% the next year and then back to 40% in 2006-07 before returning to 50% in 2007-08. The first year allowance can be claimed on most assets except vehicles were special rules are applied.
A fixed asset includes not just the original cost of the item but also the cost of alterations, improvements and extensions of the asset. The fixed asset cost does not include the repairs and maintenance of that asset which may be treated as a normal business expense and written off against income when incurred. Accounting records need to be kept of fixed asset purchases in order for the capital allowances to be calculated and included in the self assessment tax return.
The writing down allowance is 25% of the net written down value for tax purposes and is the amount of capital allowance claimed on fixed assets after the first year and in the case of motor vehicles used for business purposes in the first year. Capital allowances on motor vehicles being restricted to a maximum of 3,000 pounds per vehicle and vehicles costing over 12,000 pounds being in a separate section of the tax return to those under 12,000 pounds
Completing the self assessment tax return form also includes calculating the capital allowances which compromise of two elements. Capital allowances being a first year allowance which can be claimed on some types of fixed asset and writing down allowance on the net asset value in subsequent years until the total value of the fixed assets has been claimed against profits earned.
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