Module 121 min2266 wordsFree — no account
When a cost is deductible: accruals, certainty, booking in the accounts, relevance and depreciation
The module’s worked examples, then cases to attempt before revealing their solution · 5 sections · 533 words · 6 min
Worked example
An insurance premium spanning two years
A business pays a 1,200 euro premium on 1 October 2026 for twelve months of cover. Three months fall in 2026: 1,200 × 3 / 12 = 300 euros is a 2026 cost. The other 900 euros are a prepayment and become a 2027 cost, even though the money has already left the account.
Worked example
Shared consultancy with exempt income
A business has 900,000 euros of taxed revenue and 100,000 euros of exempt income. A 10,000 euro organisational consultancy serves both activities. The ratio is 900,000 / 1,000,000 = 0.9, so 9,000 euros are deductible and the remaining 1,000 euros are added back to profit.
Worked example
A machine delivered in December
A business takes delivery of a machine on 20 December 2026 but installs it and puts it into service in February 2027. The purchase counts as made in 2026, because delivery fixes its date; depreciation, however, starts in 2027, at the halved first-year rate. In 2026 the asset produces no deductible charge at all.
Practical case
Closing Laura's books
Laura's SRL closes 2026 with an accounting profit of 50,000 euros. Its booked costs include: a 2,400 euro insurance premium paid on 1 July 2026 for twelve months and charged entirely to 2026; 3,000 euros for the shareholder's private trip; a 450 euro printer expensed in the year; 500 euros of late-payment interest accrued to a supplier but not yet paid. There are no other adjustments. How much IRES does the company owe at the standard rate?
Hint: Take one item at a time: which part of the premium belongs to 2027, which expense is not relevant, which cost is only deductible once paid, and whether the printer exceeds the low-value asset threshold.
Show the solution
Premium: six months fall in 2027, so 1,200 euros are added back. Private trip: not relevant, 3,000 euros added back. Printer: 450 euros does not exceed 516.46 euros, fully deductible, no adjustment. Late-payment interest: deductible when paid, 500 euros added back in 2026. Income: 50,000 + 1,200 + 3,000 + 500 = 54,700 euros. IRES: 54,700 × 24% = 13,128 euros.
Answer: 13,128 euros of IRES
Practical case
The first year of a newly formed company
An SRL is formed on 1 September 2026 and will invoice its first revenue only in March 2027. In 2026 it incurs 3,000 euros of formation costs, which the accounts capitalise and begin to amortise, buys twelve chairs at 150 euros each in October and puts them straight into use, and pays office rent of 500 euros a month from September to December. How much can the company deduct for the 2026 tax year?
Hint: Separate multi-year expenses, which for a new business wait for the first revenue, from low-value assets and periodic rent, which follow the ordinary rules.
Show the solution
Formation costs: multi-year expenses of a newly formed business, deductible from the year of first revenue, that is from 2027; nothing in 2026, and the portion charged in the accounts is added back. Chairs: each costs 150 euros, below the 516.46 euro threshold, so 12 × 150 = 1,800 euros are deductible in full. Rent: four payments accrued in 2026, 4 × 500 = 2,000 euros. Total: 1,800 + 2,000 = 3,800 euros.
Answer: 3,800 euros deductible for 2026
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