Minimum value for an Asset
Discussion
Is there any minimum value, above which an item is classed as a Fixed Asset.
For example, if I buy a printer for £50 + VAT, can I charge this to P&L as an expense or MUST it go the asset route and be depreciated in accounts / capital allowanced for Tax?
I seem to remember a £500 limit, but this may have been an internal rule of a company that I worked for.
Simon
For example, if I buy a printer for £50 + VAT, can I charge this to P&L as an expense or MUST it go the asset route and be depreciated in accounts / capital allowanced for Tax?
I seem to remember a £500 limit, but this may have been an internal rule of a company that I worked for.
Simon
Hi
You can set your own accounting policies (but agree them with your accountant!). Many accountants don't want to capitalise items less than £500, but if you want to set that value to a different value then its your choice (to a degree, I'm sure HMRC would take a dim view if you made it £50K and made everything an expense!)
davidy
You can set your own accounting policies (but agree them with your accountant!). Many accountants don't want to capitalise items less than £500, but if you want to set that value to a different value then its your choice (to a degree, I'm sure HMRC would take a dim view if you made it £50K and made everything an expense!)
davidy
There are definately Companies out there that capitalise and depreciate assets of around £50 in value. HMRC wont be interested in the value so long as they really are assets.
As said previously Companies do set their own individual limits on the minimum value of assets that they will put on the balance sheet. Therefore you will be able treat your printer as an asset providing your accounting policy doesn't have a lower limit of more than £50.
As said previously Companies do set their own individual limits on the minimum value of assets that they will put on the balance sheet. Therefore you will be able treat your printer as an asset providing your accounting policy doesn't have a lower limit of more than £50.
A number of factors determine whether an item needs to be capitalised -
its cost
its expected economic life
the business' policy on capitalisation
The first consideration is the economic life of the asset. If an item is expected to last longer than a year, it should be considered for capitalisation. However, the business' policy will then determine if this is appropriate.
The main element to consider after that would be cost. The minimum costlevel at which point an item should be capitalised is entirely down to the business. If a business wants to write off the acquisition of capital items in the year of purchase, they are absolutely free to do so. That is an accounting issue, not a tax issue.
Also, there is no set value at which an item should be capitalised. For a small business, £50 might be an appropriate level at which items should be classified as Fixed Assets. For a larger operation, £1,000 (or even £10,000 - if you're a large multi-national) might be the correct level.
However, the tax authorities might not agree with 100% write offs of Capital items and insist that appropriate Capital Allowance rates are applied to the asset.
Oddly enough, at certain times in the past, the Revenue have specifically ALLOWED 100& rates of Capital Allowances on certain types of assets. These would be applied in the tax computations, irrespective of the accounting treatment and depreciation policy adopted by the business in its accounts.
There are many, many tax cases where the Revenue have disagreed with a business' tax treatment of a capital item.
its cost
its expected economic life
the business' policy on capitalisation
The first consideration is the economic life of the asset. If an item is expected to last longer than a year, it should be considered for capitalisation. However, the business' policy will then determine if this is appropriate.
The main element to consider after that would be cost. The minimum costlevel at which point an item should be capitalised is entirely down to the business. If a business wants to write off the acquisition of capital items in the year of purchase, they are absolutely free to do so. That is an accounting issue, not a tax issue.
Also, there is no set value at which an item should be capitalised. For a small business, £50 might be an appropriate level at which items should be classified as Fixed Assets. For a larger operation, £1,000 (or even £10,000 - if you're a large multi-national) might be the correct level.
However, the tax authorities might not agree with 100% write offs of Capital items and insist that appropriate Capital Allowance rates are applied to the asset.
Oddly enough, at certain times in the past, the Revenue have specifically ALLOWED 100& rates of Capital Allowances on certain types of assets. These would be applied in the tax computations, irrespective of the accounting treatment and depreciation policy adopted by the business in its accounts.
There are many, many tax cases where the Revenue have disagreed with a business' tax treatment of a capital item.
Edited by Eric Mc on Thursday 26th April 08:22
Doesn't the revenue have any guidance on value for tax purposes?
I've looked but can't find anything.
Clearly, a stapler that costs less than £5 has a economic life of many, many years - mine is over 30 years old as is my hole punch!
The revenue doesn't expect these things to be treated as a Fixed Assets for tax purposes, so they must have some limit or threshold to work by.
Would £500 for a consultancy firm with a t/o around £100k be seen as reasonable?
Simon
I've looked but can't find anything.
Clearly, a stapler that costs less than £5 has a economic life of many, many years - mine is over 30 years old as is my hole punch!
The revenue doesn't expect these things to be treated as a Fixed Assets for tax purposes, so they must have some limit or threshold to work by.
Would £500 for a consultancy firm with a t/o around £100k be seen as reasonable?
Simon
The Revenue DELIBERATELY do not set thresholds for "Capital/Revenue Costs". They leave the decision to the business and will argue the toss if they decide to do so.
With a turnover of £100,000, I would be inclined to capitalise items of £100 plus and then apply whatever depreciation charge I thought was appropriate.
The Capital Allowances can be as high as 50% in the first year for many Capital items so the tax saving of trying to write the item off in the year of purchase as a "Repair" or "Stationery" might not be worth the hassle of having to exoplain why you did so to the Revenue.
With a turnover of £100,000, I would be inclined to capitalise items of £100 plus and then apply whatever depreciation charge I thought was appropriate.
The Capital Allowances can be as high as 50% in the first year for many Capital items so the tax saving of trying to write the item off in the year of purchase as a "Repair" or "Stationery" might not be worth the hassle of having to exoplain why you did so to the Revenue.
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