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WDA and Depreciation

  • Lifetime Member
  • 3 posts
  • # 86290

Hi everyone! I’m new to the forum.
I wonder if anyone can help me..... I’m studying for the SE tax exam and getting a little confused between the writing down allowance (WDA) and depreciation on assets. I understand how WDA is worked out and that it can be claimed as a capital allowance on the tax return instead of depreciation. BUT, am I right in thinking that separate records have to be kept of the tax written down value and WDA on the capital allowances pool for tax purposes, and these are completely different to the depreciated capital assets that are recorded in the balance sheet accounts?
  • 84 posts
  • # 86291

Hi,

I've just taken the exam.  I had to do corrections so am waiting to see whether or not I passed. 


Depreciation is how the individual company decides how to annually assess the value of its assets.  So a compay might choose to depreciate the value of their assets by 20% each year, or a set amount each year, or even assess different assets differently.  In any case, this affects the company's balance sheet and profit and loss.  


HMRC allow for depreciation but only at their set rates.  So let's say a company chooses the 20% route for depreciation.  Depending on the asset type, HMRC allow different Write-Down Allowances.  HMRC also allow for the Annual Investment Allowance and the First Year Allowance.  Depending on the type of asset and when it was purchase, the company may be able to claim an allowance for depreciation anywhere from 10% to 100% of the purchase price.  You need to check with HMRC each year because these allowances may change from year to year.  

I found this difficult on the exam as well because in my example I thought the client should be able to claim Annual Investment Allowance but because the equipment was introduced as capital, AIA was not appropriate and WDA was to be used instead.  That's the main reason why I didn't pass the first time.  It's one of the trickier parts of self-assessment.


I hope this answers your question.  Good luck!


Best Regards,

Emily Sitch

Whittleford Bookkeeping Services
  • Lifetime Member
  • 3 posts
  • # 86303

Many thanks Emily for your comments.

My main concern, which you have indirectly answered, was whether I had to keep two sets of records for a client's capital assets; one for the accounting records showing depreciation and how this is calculated which will be included in the profit & loss account and the balance sheet; and another set of records for the capital allowance calculations for the tax returns as these will be completely different to depreciation.

Hope you are successful with your exam.

Regards
DaveR      
  • 84 posts
  • # 86305

Sorry, Dave.  I missed that part of your first post. 


I would keep two sets of records.  Depreciation is usually done once a year so it shouldn't be too much of an issue.  When doing self assessment, you will need to adjust the profit and loss account anyway to take out any disallowed expenses and add any allowable expenses that don't already appear.  This is when you will take out the company's depreciation figure and add the one allowed by HMRC.  It would be best to keep track of the WDA pools separately as you will need these figures each year.   I hope this answers your question. 


Good luck in your course.


Best Regards,

Emily Sitch

Whittleford Bookkeeping Services          
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