Tax
Self Assessment Tax Return Form and Capital Tax Allowances
100% of the purchase price of the majority of items is deducted from ie as business expenditure to produce a net taxable profit. Purchases of certain items where that item is not consumed by the business in a single year but may be used by the business in both the current year and future years are not expensed in the year of purchase but classified as fixed assets. It is these items which are not written off in the tax year but are subject to capital allowances.
A fixed asset includes not just the original cost of the item but also the cost of alterations, improvements and extensions of the asset. The fixed asset cost does not include the repairs and maintenance of that asset which may be treated as a normal business expense and written off against ie when incurred. Accounting records need to be kept of fixed asset purchases in order for the capital allowances to be calculated and included in the self assessment tax return.
Having identified certain items as fixed assets the normal accounting practise is to use a technique called depreciation to write off the cost of the asset against profits over the expected life of that asset.