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Pretty please can someone help me!
Sometimes when working out NPV, it will say that the tax rate (usually 25/30%) is paid a year in arrears.
That is fine.
However, then if there are tax benefits from the capital allowances to claim, sometimes these will also be claimed a year in arrears, but sometimes they will be claimed the year before the tax is paid!
I can’t see any correlation or pattern.
Can anyone help?
Thank you! 🙂
(If you post in this forum, then it is me who will help. If you want others to help them post in the general F9 forum 🙂 )
Strictly, the rule is as follows (assuming tax is one year in arrears):
If you buy an asset on the first day of an accounting period, then the CA’s will be calculated at the end of the year (i.e. at time 1) and the tax affect will be one year later (i.e. at time 2). So a two year delay.
However, if you buy an asset on the last day of an accounting period, then the CA’s would be calculated immediately, so that with the tax affect one year later then the tax will be at time 1.
BUT……these days it is not a problem in the exam (you are not usually told exactly when the asset is bought) and so all you should do is bring in the first CA saving the same time as the first tax is payable on the operating profits. (With a 1 year delay in tax, then the first CA saving is at time 2.
The only time these days that the problem above might arise is when it is lease and buy (because there is so little problem otherwise that it is in this question when he tends to bring in the tax timing problem).
Hi John,
This is a long time after I first posted this question, and somehow I’ve only just read the reply!!! Sorry, I’m not great with these forums!
Thank you for taking the time to respond. I posted another question last night but think I would like to post it to you instead so will try and do that now!
Many thanks indeed! 🙂
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