Category Archives: Accounting

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New VAT Rate

From Monday 1 December 2008, the VAT rate will drop to 15% and remain at this level until 31 December 2009, when it will revert back to 17.5%

The new VAT fraction is 3/23.

Net Book Value

Also, called the “carrying value”, the net book value is the value of an asset in the accounts at any given point, calculated by: original value less accumulated depreciation OR previous year’s value less current year’s depreciation.  (Ignoring, for the time being, revaluations and so on)

In yesterday’s examples, the net book values would be as follows:

Straight Line Method
At the end of year 1: £10,000 – £1,000 = £9,000
At the end of year 2: £10,000 – £1,000 – £1,000 = £8,000 OR 9,000 – £1,000 = £8,000
At the end of year 3: £10,000 – £1,000 – £1,000 – £1,0000 = £7,000 OR 8,000 – £1,000 = £7,000

Reducing Balance Method
At the end of year 1: £10,000 – £2,500 = £7,500
At the end of year 2: £10,000 – £2,500 – £1,875 = £5,625 OR £7,500 – £1,875 = £5,625
At the end of year 3: £10,000 – £2,500 – £1,875 – £1,406.25 = £4,218.75 OR £5,625 – £1,406.25 = £4,218.75

Calculating Depreciation

There are several ways of calculating depreciation.  Two of the most popular are:

Straight line method
If an asset is bought for £10,000 and it’s useful life is estimated at 10 years (with no residual value at the end of the ten years), then the annual depreciation charge is £10,000 ÷ 10 = £1,000 per year.

Reducing balance method
If an asset is bought for £10,000 and it is estimated that it reduces in value by 25% each year, the annual depreciation charge at the end of year 1 would be £10,000 x 25% = £2,500.
At the end of year 2, it would be (£10,000 – £2,500) x 25% = £1,875
At the end of year 3, it would be (£10,000 – £2,500 – £1,875) x 25% = £1,406.25

What is Depreciation

Depreciation is the decrease in value of an asset.  It reflects the use of the asset and the passage of time.  It spreads the cost of the asset across the years (or more correctly, accounting periods) of it’s useful life.

What is Capital Expenditure

Capital expenditure is quite simply expenditure on buying or improving an asset (whether that asset be a physical one or not which “provides future benefits” over more than one accounting period).

It is commonly abbreviated to Capex.

Payroll record keeping

Once a payroll is in operation, HMRC lay down certain requirements as to what records and information needs to be kept.  These include:

  • employees names, addresses (and their dates of birth)
  • gross pay, NICs, PAYE, other deductions, net pay (keeping a copy of their payslip would normally satisfy this requirement, assuming the payslip contained all the correct and required information)
  • copies of the employees’ P60
  • holiday, sickness, overtime, bonuses, commission details
  • value of benefits in kind and expense payments
  • amounts paid over to HMRC

Other information will also be required in the event of maternity/paternity/adoption and sickness/sick pay. 

In addition to records relating to payroll, you will be required to keep records relating to other matters, for example: hours worked, pensions, holidays taken, accidents.  (This is not an exhaustive list by any means)