finance lec 5 - Taxation Flashcards
we cant give proper Investment Apprasiasl reccomendaions without taking what into account
tax implicationa
what is tax charged on
profits made
in terms of income and expenses what is taxable and what is deductable
income - taxable
expenses - tax deductible
why do gov give tax allowancce
to incentivise bs to invest in assets
in terms of investing in assets you are allowed to write off waht
part of the cost of investment - allowd to treat it as an expense
when you write of cost of investment of an asset it is only for teh purpose for ….. not
calculating tax
doesnt change the final figure of profit for your SH
contiuing on cost of I being weitteen off why cant investment in assrt be treared as an expense in the IS
Cause it is an asset not an expense s dont sit in the income statement
onyl treat it as an expennse for tax purposes only
if we have more taxable expenses what will taxable profit be
smaller
how do we calculate the tax liability
taxable profit * tax rate
capital allowance is defined as
tax reloef given on investment in tangible non current assets
e.g land building equpment , machinery
what is our reducing balance aka tax rate
25%
some assetsattract greater
first year allowwances
e.g 40,50,100%
who does 40% tax allowance fo to
medium sized company
who does 50% tax allowance go to
small company
who does 100% tax allowance go to
really innovative environemtnyl friednly prokect
after 1 year what do the special tax allownace go back to
25%
if i get a tax llowance of 100% why is this so amaxinf
got no value in next year balance so never charged on it really
tax losses and credit canbe
carried forward
you may get a balancing charge /disposal if
disposal proceeds are more/less than the tax write down value
at end of project you can sell asset it may hahve a scarap value of
0
or £ x amount
lets say project cost you 100k - at the end of a 5year proect now valued at 30k - so we write off 70k
now we gonna sell it for 50k
gov said only used 50 k cal of aset
what does the gov require you do
gov said you’ve only used 50k of value of asset so pay tax on the additional 20k you sold for
lets say project cost you 100k - at the end of a 5year proect now valued at 30k - so we write off 70k
now we gonna sell it for 15k as this is the hihgest we can go
gov says you used up 85k of asset value
but CA can only let you write off 70k
what does the gov do
Give you a balancing allowance in final year to make up for the 15k extra value loss
how do we work out big tax questions
- w/o capital allowance
reduce pretax cashflow by capital allowance to get adjusted taxable profit
calcaulte he tax rate on the taxable cashflow/profit and pay it
subtract taxable from pretax
w/o all the cashflows - dont forget the disposal value add on
w/o npv
of the opening value for the (last period) is bigger than the disposal value what will happen
will geet a balancing allowannce and vise versa
how can you work out the balancing charge/allowance
total use of asset
_
total writing down allowance
how do we work out total use of asset
differnce between
what you started off with
and disposal value
how do we work out the total writing down value /capital allowance
add all the capital allowance till expcept for the last yea
capital allowance aka
writig down value
