I am having difficulty knowing when to use the capital allowance figure or the tax relief figure. I am trying to do a question and I am noting that sometimes the capital allowance figure is used and other times the Tax Relief figure is used. How do I know which one to use??? This is confusing and I need some help!!! Please anyone?????
It does not make any difference – both approaches will give the same answer.
Either calculate tax on the operating flows ignoring capital allowances, and then show the saving from capital allowances.
Alternatively subtract the capital allowances from the operating flows to get the taxable profit, calculate the tax on the taxable profit, and then add back the capital allowances because they are not a cash flow.
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