Taxation

In this lesson

1. 0:00 Taxation and investment appraisal
2. 0:43 Tax timing and payment delays
3. 2:21 Capital allowances vs accounting depreciation
4. 4:23 Worked example: calculating tax allowances
5. 6:47 Adjusting for tax in NPV calculations
6. 11:48 Tax allowances with 100% first year relief

About this lesson

This lesson covers the timing of tax payments, the difference between accounting depreciation and tax allowable depreciation (capital allowances), and how to adjust cash flows for tax relief. You'll work through practical examples showing how to calculate taxable profits, apply tax rates correctly, and handle timing differences—essential skills for FM, AFM, and SBL papers where investment decisions must account for real tax consequences. The video walks you through the mechanics step by step: how to add back accounting depreciation, replace it with tax allowable depreciation, calculate the tax charge on adjusted profits, and crucially, time the cash outflows correctly since tax is often paid in arrears. You'll see how different allowance methods (such as reducing balance basis) affect the tax benefit year on year, and how to discount these tax-adjusted cash flows to reach your final investment decision. By mastering these techniques, you'll be able to evaluate whether projects truly create value after tax, rather than relying on pre-tax figures that can be misleading.

Duration: 15m