Depreciation: the expense spread over several years
A van is not an expense of the month it is bought in. It is an expense of the years it is used — a little over six, if it is depreciated at the table's maximum rate — and that share is deducted every quarter.
The systematic spreading of the cost of a fixed asset across the years in which it is used, as a deductible expense of each of them.
Article 12 of the Corporation Tax Act governs depreciation for tax purposes, and article 28 of the Personal Income Tax Act refers to it for economic activities. The table in article 12.1 sets, for each type of asset, a maximum straight-line rate and a maximum period:
- Data processing equipment: 25% · 8 years
- Computer systems and software: 33% · 6 years
- Furniture: 10% · 20 years
- External transport equipment: 16% · 14 years
- Commercial, administrative and service buildings, and dwellings: 2% · 100 years
Small things, all at once
Article 12.3.e) allows free depreciation of new tangible fixed assets with a unit value not over €300, up to a limit of €25,000 per tax period. A chair costing €180 is an expense of the year, with no tables involved.
An example with numbers
A laptop costing €1,800 bought in January, at 25%:
- Annual depreciation: €450
- Cumulative at 30 September: 450 × 9/12 = €337.50, which is already deducted on the third quarter's instalment payment.
At a rate of 20% on form 130, that €337.50 is worth €67.50 less to pay that quarter. With four or five assets being depreciated, the annual difference runs to hundreds of euros.
The mistake that comes up most
Putting the whole purchase down as an expense of the year. As well as being wrong, it brings forward an expense that would be worth more spread out, and it leaves the net book value at zero from day one: the day the asset is sold, the whole amount is profit.
Where this carries on in Cairos: Fixed assets and depreciation tables.
Terms that go with this one
Almost no tax concept makes sense on its own. These three are the ones that most often turn up beside it.
Net book value
The acquisition price of an asset less its accumulated depreciation and less any impairment recognised.
VATCapital goods
Tangible goods intended to be used for more than a year as a tool of the trade or means of production, subject to a multi-year adjustment of the VAT deducted.
IRPF and withholdingsNet income
What is left after deducting the tax-deductible expenses from the gross income of the activity, before applying any reductions.
This, handled without thinking about it
Cairos keeps the invoices, the record books and Hacienda's forms from the same data, so the theory on this page turns into boxes that are already filled in.
No card and no minimum term.