Tax return time yay! But... Depreciation as an expense?
I know the basics of doing my own tax return. I was one of the fortunate (HA!) few in 1997 randomly selected guineapigs to do self-assessment. At the time I had two jobs (as now, except BOTH were PAYE) so I ended up being due a rather fat refund from Mr Revenue due to my running costs.
Now, as both full-time & self-employed I have to declare what I make again, as would be the right thing to do being all above board. So far, so good.
We all know the basics - Profit equals income minus expenditure. You're allowed to claim a certain amount for using your home for business, mileage etc.. all very clear.
When it comes to assets, I've encountered some conflicting information. Lots of articles (HMRC included) seems to suggest I can simply put all my equipment purchases down in my AIA & those come straight out of my income (profit = income minus money out on the very simplest level). So earnings liable to be taxed equals income minus expenses, right? Simples.
However, somebody I know gave me a worksheet an accountant friend made up for them which is deducting both the purchase price AND depreciation as capital. E.g. If £1000 of gear was bought (this is in a separate area to consumables), this is deducted from income as an expense but so is 20% depreciation in its first year. For the sake of this example, this would result in £1200 being deducted from income as opposed to just £1000. I'm pretty sure this is completely wrong. The revenue wouldn't dare dream of letting you claim an allowance twice now would they?
An example calculation:
April 2015 to April 2016 income: £10,000
Spend on equipment: £3000
Other expenses (mileage @ £0.45/mile, home office etc) £1000
Profit = £10000 - £3000 - £1000 = £6000, so I'd have to pay tax on the £6000 profit I'd made.
However, if I wanted to spread the cost of gear purchases (say a nice expensive brand new van) I might be more sensible to split the cost of the asset over a nominal figure of its working life (say 5 years at 20% per year - £10,000 van first year's deduction would be £2000, next year's would be £1600 etc etc etc).
I know a lot of you are going to yell "go to an accountant" but I don't think this is really rocket sciencey enough to warrant it.
Is it as simple (in basic terms) as I think.. or can I indeed claim for depreciation too?