Busiess Taxation Essay Example | Topics and Well Written Essays - 1500 words

Busiess Taxation - Essay Example this expenditure is not an operational variable, it is charged in the balance sheet as an asset rather than expenditure in the profit and loss account. However, usage of the fixed asset over time is shown in the profit and loss account as a depreciating charge. Tax is applicable for companies on profit figure at the end of the tax year. Since the tax is fixed rate, the higher the profit the company shows, the higher tax it has to pay. Therefore to evade paying higher taxes, companies understate their profits by depreciating their fixed assets on a high value. This reduces the profit and hence the tax payable. Since this practise promotes immoral and unfair picture of the accounts, the government of UK introduced the concept of Capital Allowance through corporation tax. The case of IR Commrs vs Duke of Westminster (1936), exactly points out this need where it states that everyone â€Å"is entitled, if he can, to order his affairs, so that the tax attaching under the appropriate acts is less than it would otherwise be†. The government has fixed a rate of relief that is received on the purchase of capital goods. Companies can claim this type of tax relief when buying and investing. In practice this does the exact same thing a depreciation does since a company is able to set off a proportion of the costs of purchases against the profits it makes so that the total tax bill is reduced. Most capital allowances allow you to write off a percentage of the value of the asset against profits over several years. They are available at a variety of rates and these rates depend on the product bought, the time it was bought in, the nature of the asset and the size of your business. (Georgina, 2006; S. J. D. 2007) As mentioned in the previous section, tax relief can be claimed by companies on the purchase of capital goods. According to the Business Links Website, these capital allowances are available on three types of products, plant and machinery, buildings and research and