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Dear sir,
In chapter 4 we saw the calculations of the adjusted trading profit over a given time period (1 year).
Showing that some items such as motor cards are to be added back if they where used privately.However in chapter 5 on capital allowances in the non-pool assets we again see that cars are to be added back if they are used for private use.
I am a bit foggy (unclear) on what the difference is between Adjusted Trading Profit and Capital Allowances.
Could you please be so kind to clarify.
Thank you
In the adjustment of trading profit we disallow (add back) depreciation of plant and machinery, for example on the cost of cars purchased. As a separate adjustment to do with cars we add back any private use motor expenses – running costs, insurance, repairs etc
In capital allowances we replace the disallowed DEPRECIATION charge and replace it capital allowances – the tax allowable way that tax relief is obtained for qualifying capital expenditure.
Once again if there has been private use of a car by the proprietor of the business the capital allowance available for claim is restricted to the business use proportion.
If you refer to page 25 of the course notes you will see that following the adjustment of trading profit (as shown in chapter 4) we then deduct capital allowances to compute the final tax adjusted trading profit figure upon which the taxpayer will be charged to tax
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