help needed for Depreciation & VAT yr accounts

[css_jay99]

Hi all, I have a couple of questions to ask

Depreciation on fixed assets
Do I use straight line or reducing balance for the computer I built for about £1000. what % if reducing balance or how many yrs if straight line




Extra income on VAT - Flat rate Scheme

Since I charge client/agency 17.5% and pay back to taxman 13%(well 12% as 1st year of reg).

so say I bill my client 1000 + 17.5& VAT = 1175
I have paid 12% * 1175 = 141 to the taxman as VAT

This is an extr revenue of £34

Question is from Profit & Loss perspective:-

(1) Is my revenue from sales £1000 or £1034?
(2) If answer to 1) is no, then where does that extra go?
(3) If anyone is using SAGE instant acounts, would it handle (1) & (2)?

thanks very much

css_jay99

[Danbro]

Danbro Accounting Limited

Hi, the answers to your questions are:

Depreciation – This is an accounting policy choice, I would go for 25% straight line for computer equipment, ie reduce the value by £250 each year for 4 years.

Just to note that Depreciation is not allowable as a deduction for Corporation Tax, this is effectively replaced by Capital Allowances. For the year to 31/3/08 you can claim 50% first year allowance, ie £500, then 20% reducing balance from 1/4/08, the rules have changed from 1/4/08 so if you purchased any assets excluding cars after this date you can claim 100% first year allowance for up to £50,000 of spending per annum. ( Annual Investment Allowance )

Extra income on VAT - Flat rate Scheme

1) Any profit on the flat rate scheme is effectively added to your sales, your sales and expenses go into your accounts gross and the flat rate VAT will then be deducted from your sales, the effect is that your sales will include any profit from the FRS.
2) As I recall Sage cannot autmatically account for FRS VAT, so if you use Sage to raise sales invoices:

Your Sales invoices would be entered as normal with VAT deducted at 17.5%
Your expenses would go in gross not accounting for VAT
At the end of each quarter you will need to journal in the flat rate saving, ie for £1000 invoice

Before Adjustment

Cr Sales £1000
Dr VAT £175
DR Debtors £1175

Adjustment
Cr Sales £34
Dr VAT £34

[Sockpuppet]

Use 25% straight line. Bear in mind that depreciation does not equal capital allowances which determine CT. This only determines your BS.

1) £1034 (techically). £1000 sales, £34 other income (like interest recieved).

2) N/A

3) If it was me I'd use Sage normally (i.e. let it deal with VAT as normal rate). Then record a T9 reciept into the bank on a 4000 series code for the difference (e.g. the £34). Add another code next to bank interest recieved which is 4906 afaik.

As long as you or your accountant can make head nor tails of it then its fine.

[css_jay99]

Thanks very much for your advice guys.

regarding VAT, can I presume I can Journal the difference monthly.

I will get back to you after some reading on depreciation and CA

cheers

I cant believe my new gig does not allow CUK forum!

css_jay99

[Danbro]

Danbro Accounting Ltd

Hi css_jay99

You can post the journal I suggested monthly, just remember not to reclaim VAT on expenses ( apart from any single assets costing more than £2k inc VAT).

Thanks

Neil Ormesher

[css_jay99]

Depreciation – This is an accounting policy choice, I would go for 25% straight line for computer equipment, ie reduce the value by £250 each year for 4 years.

Just to note that Depreciation is not allowable as a deduction for Corporation Tax, this is effectively replaced by Capital Allowances. For the year to 31/3/08 you can claim 50% first year allowance, ie £500, then 20% reducing balance from 1/4/08, the rules have changed from 1/4/08 so if you purchased any assets excluding cars after this date you can claim 100% first year allowance for up to £50,000 of spending per annum. ( Annual Investment Allowance )

Hi there again. Does the Capital allowance need to be apportioned ?.

My year runs jan-dec straddling 2 tax years.
I build a computer for my company on Oct 2007 for £1056.36
I also sold my laptop to my company on Jan 2007 for £850

will CA on both assets for my Financial(2007) year be 50%(1056.36+850) and then 20% reducing balance

or Do I have to apportion for the 2 tax years (assuming change in rules) ?

cheers

css_jay99

[Danbro]

Danbro Accounting Ltd

Hi there again. Does the Capital allowance need to be apportioned ?.

My year runs jan-dec straddling 2 tax years.
I build a computer for my company on Oct 2007 for £1056.36
I also sold my laptop to my company on Jan 2007 for £850

will CA on both assets for my Financial(2007) year be 50%(1056.36+850) and then 20% reducing balance

or Do I have to apportion for the 2 tax years (assuming change in rules) ?

cheers

css_jay99

Hi,

First year allowances are not apportioned for shorter or extended periods, however writing down allowances are.

If your period of trade is longer than 12 months ( usual for first period of trade ) when you calculate Corporation tax / capital allowances you basically done for the first 12 months of trade in one calculation and then the surplus up to 18 months for Limited Companies in another calculation.

In your circumstance, if your year end is 31/12/07 and is just 12 months then you would just claim the 50% FYA, then next year you would claim 3 months at 25% WDA and 9 months 20% WDA on the balance.

The new rules for 20% WDA starts 1/4/08 so will apply to your next year.

Let me know if this hasn't answered your question

Thanks
Neil

[malvolio]

Let me know if this hasn't answered your question

Thanks
Neil

I suspect it has.

But out of interest, I'm guessing your other clients pay for that level of advice whereas the OP has said before that he thinks accountants are a waste of time and money (despite our best advice...). So where would you draw the line between being helpful and giving away expensive-to-acquire business advice for free?

[Robot]

Hi,

First year allowances are not apportioned for shorter or extended periods, however writing down allowances are.

If your period of trade is longer than 12 months ( usual for first period of trade ) when you calculate Corporation tax / capital allowances you basically done for the first 12 months of trade in one calculation and then the surplus up to 18 months for Limited Companies in another calculation.

In your circumstance, if your year end is 31/12/07 and is just 12 months then you would just claim the 50% FYA, then next year you would claim 3 months at 25% WDA and 9 months 20% WDA on the balance.

The new rules for 20% WDA starts 1/4/08 so will apply to your next year.

Let me know if this hasn't answered your question

Thanks
Neil

If css_jay99 sold the laptop to his company then the laptop is second hand. Can you really claim FYA on second hand capital items? I thought it was only new capital equipment you could claim FYA on.

[Danbro]

Danbro Accounting Ltd

I suspect it has.

But out of interest, I'm guessing your other clients pay for that level of advice whereas the OP has said before that he thinks accountants are a waste of time and money (despite our best advice...). So where would you draw the line between being helpful and giving away expensive-to-acquire business advice for free?

Hi,

I really don't mind answering any questions really, I try not to post whilst working as I am busy enough but I suppose I feel I am helping people with answers they feel is easily obtained on this forum.

Thanks
Neil