DEPRECIATION AND FIXED ASSETS
You need to prove the purchase and sale of any fixed asset with an invoice. If you start using a private asset for business purposes, or if you keep business assets for private use after you cease trading, you must confirm that the asset is valued at market value. This may mean getting an independent valuation.
For good record-keeping of fixed assets, we recommend that you use a fixed asset register.
For accounting purposes depreciation is a charge for the use of the fixed assets, effectively spreading their cost over their revenue producing lives. There are various ways of calculating depreciation so as to spread the charge of assets over their life.
For taxation purposes, depreciation is not an allowable deduction; however, the purchase of any fixed asset may attract capital allowances.
Capital expenditure is incurred on the acquisition of fixed assets required for use in the business or that expenditure on existing fixed assets which increase their earning capacity. Capital expenditure is not in itself an allowable deduction but it may attract capital allowances. Capital allowances are treated as a trading expense and are deducted in arriving at trading income.
The Income Tax Act Chap. 15.02 (Second Schedule) makes provision for capital allowances to be made available in respect of expenditure on:
- Plant & Machinery
- Agriculture Expenditure
The Income Tax Act also allows as a deduction an initial allowance of one-fifth (20%) as well as any amount to which you are entitled to under the Second Schedule in respect of capital expenditure incurred by you.
Balancing charges and allowances can also be claimed on the sale or disposal of a fixed asset.
Capital Allowances form