2 min read
Definition
Depreciation spreads asset cost over its life in the accounts; capital allowances give the equivalent relief for tax. Depreciation is added back in the tax computation and allowances substituted, because the two use different rules.
In plain terms
Two systems for the same idea — writing off an asset over time — one for your accounts, one for the taxman. They rarely give the same figure, so the tax computation swaps one for the other.
Why it matters for your company
This swap is why taxable profit differs from accounting profit. Understanding it explains a big part of the gap, and why timing capital spend affects tax differently from how it hits your accounts.
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