How to record assets depreciation for tax purposes
Thread poster: Nehad Hussein
Nehad Hussein
Nehad Hussein  Identity Verified
United Kingdom
Local time: 11:06
English to Arabic
Nov 9, 2015

Hi Fellow Translators,

I am sole trader and have recently bought a new computer for my business use which cost me a good amount of money. I always try to update my accounting record regularly to avoid the end of the year tax-mess. The problem with this one is that it is not a one off expense. So I need to write it as assets and calculate the depreciation over a period of time. Any idea in simple English words how to do that?

Thanks for your answers in advance.


 
philgoddard
philgoddard
United States
German to English
+ ...
I never used to bother Nov 9, 2015

When I was in the UK, I just showed items like that as current expenditure - I don't think HMRC would be all that interested. But there did used to be a box on the tax return for capital allowances claimed.

 
Tom in London
Tom in London
United Kingdom
Local time: 11:06
Member (2008)
Italian to English
Plant and machinery Nov 9, 2015

A big-ticket purchase like a computer can't be filed as a normal business expense. The same goes for any other business-related purchases with a useful life of more than two years such as computer software and peripherals, other machinery such as shedders, printers, etc.

If any of these items are not used exclusively for business purposes then each time you should record the purchase in your book-keeping as "capital allowances" and you would presumably need to specify a percentage
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A big-ticket purchase like a computer can't be filed as a normal business expense. The same goes for any other business-related purchases with a useful life of more than two years such as computer software and peripherals, other machinery such as shedders, printers, etc.

If any of these items are not used exclusively for business purposes then each time you should record the purchase in your book-keeping as "capital allowances" and you would presumably need to specify a percentage value of that item that is for business use. For example if you use your computer to surf the web, email friends and family, play games, watch movies etc. then probably only about 50% would be tax-deductible.

You should be very methodical and punctilious in how you do this. You may never be subjected to a tax inspection but you should always behave as though you could be. You may think HMRC are not interested in how you do your accounts - but they might become interested. You will need to show that you are not trying to avoid paying tax.

You'll find many answers here:

https://www.gov.uk/government/publications/capital-allowances-and-balancing-charges-hs252-self-assessment-helpsheet/hs252-capital-allowances-and-balancing-charges-2015

If you are in doubt about anything you should consult an accountant. It's important to get these things right and the text of the HMRC website isn't always absolutely clear; you may need to read it many times !

[Edited at 2015-11-09 16:30 GMT]
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Charlie Bavington
Charlie Bavington  Identity Verified
Local time: 11:06
French to English
Annual Investment Allowance Nov 9, 2015

Nehad Hussein wrote:

The problem with this one is that it is not a one off expense.


Yes it is - or it can be defined as such for accounting purposes, which amounts to the same thing
Check out the rules for the "annual investment allowance".

The only issue might be (as alluded to by Tom) in the event the computer is not wholly and exclusively for business use, in which case you might only be able to claim a certain percentage of the cost. But you can certainly nonethless claim that percentage in a single financial year.

Obviously, there is nothing to stop you applying straight line depreciation over the planned lifetime of the computer if you so wish (in simple English, divide the cost by the number of years you plan to use the computer, so a £900 computer used for 3 years = £300 per year), but there is no requirement to do so.


 
Maaike van Vlijmen
Maaike van Vlijmen  Identity Verified
Netherlands
Local time: 12:06
Member (2009)
Italian to Dutch
+ ...
HMRC courses Nov 10, 2015

The HMRC organises free courses for this. They teach you how to do your taxes and how to deal with capital allowances. There's also info on their website, for example: https://www.gov.uk/government/collections/capital-allowances-manual
Good luck!


 
Dan Lucas
Dan Lucas  Identity Verified
United Kingdom
Local time: 11:06
Member (2014)
Japanese to English
There is no definitive answer to this Nov 10, 2015

Nehad Hussein wrote:
The problem with this one is that it is not a one off expense. So I need to write it as assets and calculate the depreciation over a period of time.

First, as others have suggested you could just straightline it for the useful life of the asset, say 3 years. However, depending on the cost it may be perfectly acceptable to treat it as an expense.

In my case I expensed £700 of computer equipment and my accountant saw no difficulties with HMRC for an asset with a short life such as a PC. £500 is probably the level at which one wants to consider whether or not to capitalise it.

Either way, as my accountant points out, you save on taxes. If you expense it, it's tax-deductible and you save 20% on tax. If you capitalise it, it qualifies for the Annual Investment Allowance which saves the company 20% tax.

Regards
Dan


 
bigedsenior
bigedsenior
Local time: 04:06
Spanish to English
+ ...
Non-issue Nov 11, 2015

The AIA is £250,000, so a personal computer does not need to be depreciated.

 
Dr Lofthouse
Dr Lofthouse
France
Local time: 11:06
Italian to English
+ ...
messy Nov 19, 2016

unless you earn oodles of money , its easier to treat as a one off expense - i live in a town where the local refuse collectors charge £35 a time to take away old computers etc , and you get a £1000 fine if you put them in your dustbin/flytip them!
Translators run computers into the floorboards anyway - rather like buying a second hand taxi - no one wants them - even the local charities don't want them anymore, as they get given so many these days when people upgrade.


 


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How to record assets depreciation for tax purposes






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