Buisness Assets?
Discussion
Being quite new to the Ltd Co/Director setup Im trying to learn the "best" ways to manage things and what allowances etc are available to me (my accountant is good but not too personal with the service, no suggestions etc.)
Ive just bought a new laptop for the business and wondered what the best way to treat it was in my accounts. Currently I have just bought it as a straight business expense but is there a way of listing it as a business asset as I have had mentioned to me?
Ive just bought a new laptop for the business and wondered what the best way to treat it was in my accounts. Currently I have just bought it as a straight business expense but is there a way of listing it as a business asset as I have had mentioned to me?
For most small businesses, the purchase of a laptop would be considered to be the purchase as an item of equipment - and would therefore be posted in the accounts as the purchase of a "Fixed Asset". The purchase cost would not be charged directly to the profit and loss account as a normal "Business Expense". Instead, it would be shown in the business' Blance Sheet.
For accounting purposes, the asset would be written off to the profit and loss account over its expected useful economic life by applying an annual depreciation charge. The depreciation charge is normally expressed as a percentage of the original cost.
For tax purposes, the Revenue adopt a slightly different approach to giving the business tax relief for the asset. Insteae of depreciation, "Capital Allowances" are applied. In the year of purchase, the Revenue currently allows up to 50% of the cost of the asset to be deducted against the business profits. After the first year, 25% can be claimed each year on the reducing value of the asset.
New rules are coming into effect on 5 April 2008 which will allow small businesses to claim 100% of the cost of a business asset (cars excluded) up to annual expenditure of £40,000.
For accounting purposes, the asset would be written off to the profit and loss account over its expected useful economic life by applying an annual depreciation charge. The depreciation charge is normally expressed as a percentage of the original cost.
For tax purposes, the Revenue adopt a slightly different approach to giving the business tax relief for the asset. Insteae of depreciation, "Capital Allowances" are applied. In the year of purchase, the Revenue currently allows up to 50% of the cost of the asset to be deducted against the business profits. After the first year, 25% can be claimed each year on the reducing value of the asset.
New rules are coming into effect on 5 April 2008 which will allow small businesses to claim 100% of the cost of a business asset (cars excluded) up to annual expenditure of £40,000.
Many thanks for the reply Eric.
Unfortunately Hector's rules and regs are not my strong point. Would you say it is better for my business, tax wise, to have it as a "Fixed Asset" rather than just as a business expense as I have done?
I have asked my Accountant about this but am not expecting a reply until the morning now.
Unfortunately Hector's rules and regs are not my strong point. Would you say it is better for my business, tax wise, to have it as a "Fixed Asset" rather than just as a business expense as I have done?
I have asked my Accountant about this but am not expecting a reply until the morning now.
I don't think you have any choice in the matter. It IS a business asset and should be accounted for as such. Writing it off as a day to day expense is not allowed under either accounting or tax rules.
As I said, next year, the tax rules are changing and you WILL get 100% relief on a purchase like this. The accounting rules will still insist that it is capitalised as a Fixed Asset, however.
As I said, next year, the tax rules are changing and you WILL get 100% relief on a purchase like this. The accounting rules will still insist that it is capitalised as a Fixed Asset, however.
Not sure if the accountants amongst us would agree with this (mine has yet to complain) but I keep a word file running throughout the year where I write notes to my accountant ready for the end of year accounts to be done, explaining key events and activities. One section is the purchase and disposal of assets. I keep a separate section for IT assets and other assets. I record the purchase and disposal as it happens with the values. I started keeping the file as my accountant used to ask me questions which he had obviously been pondering and wasting time ( my money) on and which sometimes I couldn't remember. This saves him and me time at the end of the year with him asking if we still have this or that bit of IT or if we have bought anything new. I am not sure if this is overkill, but;
My monthly spread sheets also have a clear separate section for capital and capital IT purchases so that I don't allocate something that should be an asset to the admin/premises expenses.
It includes explanations as to why certain duplicate or bizare transactions might be seen on the cheque books/invoicing/banking.
At year end I add details of any salaries taken by directors and dividends by share holders and then closing bank balances, debtors and creditors (including VAT payable).
I also try to explain any significant changes in costs in key areas as I know the tax man may be alert to this( e.g. a particular programme of research or the need to repair the premises).
My monthly spread sheets also have a clear separate section for capital and capital IT purchases so that I don't allocate something that should be an asset to the admin/premises expenses.
It includes explanations as to why certain duplicate or bizare transactions might be seen on the cheque books/invoicing/banking.
At year end I add details of any salaries taken by directors and dividends by share holders and then closing bank balances, debtors and creditors (including VAT payable).
I also try to explain any significant changes in costs in key areas as I know the tax man may be alert to this( e.g. a particular programme of research or the need to repair the premises).
Thanks GB.
I think I need to have a word with my accountant then as they make no provision for Capital Assets on the spreadsheet they gave me to use.
I have 3 sections per month, Invoicing/Bankings/Expenses and thats it?
I do try to stay on top of how my business is run and do not wish to rely on them 100% hence asking these questions.
I think it may be time to look for an accountant that is a bit more "helpful"
I think I need to have a word with my accountant then as they make no provision for Capital Assets on the spreadsheet they gave me to use.
I have 3 sections per month, Invoicing/Bankings/Expenses and thats it?
I do try to stay on top of how my business is run and do not wish to rely on them 100% hence asking these questions.
I think it may be time to look for an accountant that is a bit more "helpful"
Eric (or anyone that knows)
If you buy something thats a business asset, tools etc and you consequently break that tool outside of its warranty period do you still have to write it down over the original amount of time or has its useful life deemed to have ended when it breaks and anything not claimed in year one is settled there and then?
If you buy something thats a business asset, tools etc and you consequently break that tool outside of its warranty period do you still have to write it down over the original amount of time or has its useful life deemed to have ended when it breaks and anything not claimed in year one is settled there and then?
No, you can remove it from the balance sheet (at its written down value) and write it off in the Profit and Loss account as "Loss on Disposal". That is the accounting treatment.
The tax treatment is different. If it as asset which was put into the "Plant and Macinery Pool", all that happens is that any proceeds on disposal of such an asset are offset againt the pool, thereby reducing the balance being carried forward to the next year. If an asset is disposed of for nil proceeds, then its residual balance is carried on forever - or at least until the pool is extinguished or the business ceases.
The tax treatment is different. If it as asset which was put into the "Plant and Macinery Pool", all that happens is that any proceeds on disposal of such an asset are offset againt the pool, thereby reducing the balance being carried forward to the next year. If an asset is disposed of for nil proceeds, then its residual balance is carried on forever - or at least until the pool is extinguished or the business ceases.
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