You will recall the UK High Court decisions in the William Grant case and the Mars case where it had been held that the full depreciation figure was added back in computing the taxable profits even though part of it was included in the closing stock figure and hence not expended in the profit and loss account. The House of Lords has now ruled in favour of the taxpayers.

The High Court decisions had been unexpected and arose as a result of viewing the accounting treatment from a certain angle.

The following quote from the House of Lords provides a very precise summary of the decision:

• “When depreciation is to taken into account to show a true and fair view of the profit or loss for each financial year is in the end a question of timing. If, in order to show a true and fair view according to currently accepted accounting principles, part of the depreciation has in fact been carried forward, that must be treated as fact. This has two consequences. The first is that depreciation does not cease to be depreciation when it is carried forward as part of the carrying amount of stock into another accounting period. It retains its character, just like any other element of cost that is carried forward, as an expense to be set off against income in the year when the stock is sold. The second is that the amount of deprecation to be added back under section 74(1)(f) of the 1988 Act is the net amount. This is because only the net amount will have been deducted in computing the amount of the profits for the relevant period.” – Lord Hope of Craighead.

It should be noted that the Irish Revenue have not issued any guidance or opinion on the treatment of such depreciation.

A copy of the court report is available in this issue of tax.point under the Report of Tax Cases.