NIM21014 - Class 2 National Insurance Contributions: Small Earnings Exception: How Net Profit is calculated: Admissible expenses: Depreciation and capital allowances

Business assets (for example motor cars, vans, fittings and fixtures) normally reduced in value with age and use. An allowance was made for depreciation so that each year the correct cost to the business was identified and an appropriate sum set aside, by a deduction from profits, for their replacement. A common method of calculating the annual allowance was to spread the cost of the item over the period of its expected useful life after deducting its estimated scrap or disposable value. Notes to the business balance sheet sometimes indicated the method used for individual assets.

For tax purposes, there is no deduction for depreciation but the trader may claim capital allowances on plant and machinery. The Self Assessment information showed a deduction for any capital allowances that have been claimed. For the purposes of Small Earnings Exception, depreciation and capital allowances could not both be deducted in respect of the same asset.