self-employed capital tax allowance

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    Looking into a s/e claim, and we’ve taken the net profit of £7014.00 as the claimant’s earnings for the assessment period.
    The claimant disputes this as he says we should take £5410.00 into account, which is the net profit, less the ‘annual allowance @ 25% on cars costing £12,000 or less & equipment’, listed under ‘Tax Allowances for Vehicles & Equipment (Capital Allowances)’ and is for the sum of £1604.00.
    Can anyone help with this please, and confirm whether the net profit of £7014 is the correct figure, or the lessor amount of £5410.


    I would say go with your figure. We have to calculate the net profit of any self employed earner with regard to HB/CTB legislation regardless of how HMRC does it. It won’t be the first time that a HB calculation appears to be less generous than the tax man’s.


    That sounds like depreciation to me, which may be allowable for tax, but HB regulation 38(4)(b) means we can’t allow it.


    Capital Allowances are the Inland Revenue’s calculation of the depreciation on capital assets of a business. Traders are allowed a ‘Writing Down Allowance’ each year on an asset purchased for business use, of 25%. However, these are only an estimated figure, and when the the asset is disposed of the Inland Revenue calculate a balancing figure, based on how much the asset actually realised. So at a later date, the customer may have some of his capital allowances taken back.

    Bottom line, however, is that Capital Allowances relate to depreciation, which is not an allowable expense for our purposes.

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