Tax adjustments and capital allowances

Your company's accounting profit is rarely the same as your taxable profit. You must make adjustments for expenses that HMRC does not allow for tax purposes, and apply specific tax reliefs like capital allowances.

Disallowable Expenses

Disallowable expenses are costs deducted in your Profit & Loss statement that HMRC does not accept as valid deductions against Corporation Tax. Common examples include client entertainment, fines and penalties, and depreciation. In the WeFile wizard, you will enter these in the 'Tax Adjustments' section to add them back to your taxable profit.

Capital Allowances

While depreciation is disallowable, HMRC provides 'Capital Allowances' to let you deduct the cost of purchasing long-term business assets (like machinery, vehicles, and equipment) from your profits. The Annual Investment Allowance (AIA) often allows you to deduct the full cost of an asset in the year you bought it.

Writing Down Allowances

If you have assets that don't qualify for AIA, or you have exceeded the AIA limit, you apply a Writing Down Allowance, which lets you deduct a percentage of the asset's value each year.

How WeFile Calculates the Adjusted Profit

WeFile takes your base Operating Profit, adds back your entered Disallowable Expenses, and subtracts your claimed Capital Allowances. The resulting figure is your Adjusted Trading Profit, upon which your Corporation Tax is actually calculated. If this results in a loss, you can elect to carry it forward to offset future profits.