AIA on Tools

[whiteleyl]

Hello hope someone can help please we bought a nail gun for £475.00 and I was going to put this down as a annual allowance investment is that the best way to do this instead of just entering it as an expense? Also I use sage so which code would I use if doing this as an AAI? Thanks in advance

 

[UK Contractor Accountant]

0020

Are you Ltd Co, sole trader or Partnership?

 

[whiteleyl]

Thanks its a sole trader is this the best way to claim for these items as we expect them to last quite a while it a nail gun

 

[Scalloway]

Entering them as a fixed asset on Sage will not automatically create the AIA claim. You need to enter the amount paid in the correct box in your self assessment tax return.

 

[whiteleyl]

Hi yes I am aware it goes into a certain box on the tax form I just wanted to record it on sage so that I can see how much needs to be claimed on AIA when filling in the tax return. I think the sage code is 0020 plant and machinery is that correct. If I do claim this as AIA do I need to do a depreciation every year for it. The tool is a nail gun which cost 475.00

 

[Accounting Controls]

Hi
Yes you can put it under plant and machinery 0020. Will the nail gun last as long as 3 years? If it's around a year I would be inclined to put it straight to the P&L as a repair and renewal. If it's a super duper one and will last a few years then depreciate it over 3 years and charge the depreciation to the P & L whilst reducing the value of the asset. Is it something you could reasonably sell again with a value after a year? These arguments should help you decide whether it is a depreciating fixed asset or an expense of the business.
Jane

 

[Scalloway]

I just wanted to record it on sage so that I can see how much needs to be claimed on AIA when filling in the tax return. I think the sage code is 0020 plant and machinery is that correct.

What I would suggest is adding a code, such as 0024, for additions. Post it there then that will make it obvious that it is a new purchase. Then at the start of the year do a journal entry to move it to 0020. This will stop you accidently claiming twice.

If I do claim this as AIA do I need to do a depreciation every year for it.

You can depreciate it every year over its useful life. Remember to add the depreciation each to your taxable profit in your self assessment.

 

[Spur Support Services]

For once I disagree with Scalloway.
"Capitalise" is as a fixed asset in 0024, and depreciate over 3 years, but don't move it.
Claim the full cost of the asset in the year of purchase.
Add back the depreciation each year when calculating your taxable profit.

For fixed assets, you record what you wish to do with them for tax purposes in their year of purchase. Moving it to 0020 serves no purpose, other than to complicate the audit trail.

In purest terms, this should be treated as a capital purchase and go to fixed assets, but it won't make any difference if you want to send it to a "small tools" expense account in the year of purchase, whilst there is AIA.
In technical terms, the tax adjustments for calculating taxable profit are then ,
- step 1 add back capital item posted to expense account,
-step 2 claim AIA on capital item.
This would save you messing about with depn, but if you have another reason for maximising profit (such as loan financing) then capitalising and depreciating is more favourable.

I hope this helps

 

[UK Contractor Accountant]

You are all assuming the OP is using accrual accounting and not the cash basis for drawing up accounts.

 

[Spur Support Services]

You are all assuming the OP is using accrual accounting and not the cash basis for drawing up accounts.

Good point

 

[DWS]

You are all assuming the OP is using accrual accounting and not the cash basis for drawing up accounts.

 

[DWS]

Why would the OP refer to AIA if they were using the cash basis ?

 

[Scalloway]

For once I disagree with Scalloway.
"Capitalise" is as a fixed asset in 0024, and depreciate over 3 years, but don't move it.
Claim the full cost of the asset in the year of purchase.

The idea of using a separate additions code in the year of purchase is to make it clear when the OP produces a Trial Balance at the end of the financial year assets that can be claimed as AIA stand out. The transfer in the new year is to remove it to stop a double claim.

Doing it this way is an option.