# Tangible fixed assets depreciation



## manwithvan (11 Aug 2009)

Hi All
Question about the rate of depreciation for a small limited company.
I usually use 20% over five years, but can i use 100% and depreciate over one year and write the entire amount off spent purchasing the assets?


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## John Rambo (11 Aug 2009)

There's no tax benefit in doing this as depreciation is added back to arrive at the taxable trading profit/loss.


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## manwithvan (11 Aug 2009)

So you are saying I can use 100% and write off asset over one year.


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## QED (12 Aug 2009)

The item purchased is not a fixed asset if it has a useful economic life of 1 year - it is an expense.

Depreciation should take the cost of the asset to the P&L spread over the assets useful life. Therefore it does not make sense to say that the item is a tangible fixed asset that you want to depreciate in the first year.

Can you give details on the type of item purchased and the approx value?

What advantage do you see in depreciating over 1 year - is it to have a 'bad' year of results but then have less expenses going forward?

As mentioned above, there is no taxation advantage if the item purchased is classified as an Asset.


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## manwithvan (12 Aug 2009)

The reason I want to do it is reduce down my tax liability.

I had a good year in 2008 but now I will have a very bad year in 2009 and 2010, so I want to reduce down my tax liability for 2008 and as for 2009 and 2010 I would not have enough income to cover the depreciation and other general expenses.

The items involved are all under €3000 each.

Is there are reason why I could not expense the item fully in one year rather than depreciating over 5 years?


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## deadlyduck (12 Aug 2009)

As noted above, depreciation will NOT reduce your tax bill. Say you have a profit of €100000 after deducting depreciation of €50000. You will be taxable on €150000.


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## secman (12 Aug 2009)

Read John Rambo's advice, depreciation is added back to arrive at taxable income. Many fixed assets are written of over 7 years for taxation purposes ie 15% per Straight line with final 10% in year 7.

It would serve no benefit to deprec over 1 year, Auditor might have a problem with that Accounting policy !



Secman


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## KDA man (12 Aug 2009)

If you are having losses in this financial year, you can off set these against profits from last year and get a reclaim of corporation tax.

Tony
www.kdaaccountants.ie


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## manwithvan (12 Aug 2009)

Ok to help me understand how it works

If I took in 10,000 in a year and have 8,000 of expenses then I am taxed on the remaining €2,000.

If I took in 10,000 in a year and have 7,000 of expenses and 1,000 of depreciated assets then am I taxed on the remaining €2000. Or are you saying I am taxed on €3000?

Instead of depreciating over one year should I just put the items down as expenses and recuperate the costs within the one year and reduce down my tax liability?


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## Graham_07 (12 Aug 2009)

secman said:


> Many fixed assets are written of over 7 years for taxation purposes ie 15% per Straight line with final 10% in year 7.


 
Since I think 2002 Capital Allowances are 12.5% SL for 8 years.


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## Graham_07 (12 Aug 2009)

manwithvan said:


> Instead of depreciating over one year should I just put the items down as expenses and recuperate the costs within the one year and reduce down my tax liability?


 
If you expense and item which should properly have been capitalised and as a result pay less tax in a year than you should and this is brought up at a Revenue Audit then there may be implications for additional tax, interest, penalties.


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## Breninio (12 Aug 2009)

It is not possible to recategorise capital expenditure as a revenue expense in order to get a deduction for tax purposes. If it is capital expenditure a deduction should not be taken for tax purposes and Revenue would jump all over it in the event of an audit. The depreciation amount is disallowed in the tax computation and a deduction may be claimed for capital allowances provided the necessary conditions are met. As somebody else has pointed out, if you have losses this year and profits in the previous year it may be possible to carry back those losses and generate a corporation tax refund for that year.


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## Graham_07 (12 Aug 2009)

..


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## manwithvan (12 Aug 2009)

Thanks for the advise, will leave it as an asset depreciated over 5 years


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## John Rambo (12 Aug 2009)

There are other conditions which need to be satisfied in order for you to claim capital allowances...what is the nature of the asset? Cars for example are restricted to a value of €24,000 and also (for cars purchased after 1 July 2008) restricted based on the CO2 emissions of the vehicle. Also, the asset must be in use at the accounting year end. As other posters have pointed out the depreciation policy usually derives from the useful life of the asset. I suggest you speak to an accountant (i.e. get professional advice). The cost should be more than offset by the risk of a Revenue Audit and the cost to you if they discover "unconventional" tax/accounting policies in your business.


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