Claiming software as a business expense

[beandigital]

I am self employed sole trader and need to buy some software for my business. The software costs about £40,000 and I earn about £60,000 per year. Can I deduct the software cost from my profit, so that I only pay tax on about £20,000? Thanks

 

[DoolallyTap]

Yes, any business purchase is deducted from your income before tax. But what on earth is going to cost you £40000. This must be a seriously special piece of software, what do you do, what can it possibly be??
Generally speaking, for a small business with annual income around £60,000, it would be highly unusual (and difficult to justify from a cost-vs-benefit perspective) to purchase a software package costing £40,000.

 

[Porky]

£40k on software for a sole trader, moreover two thirds of your revennue, wow that's going it some - what are you getting for that?

 

[WaveJumper]

Well apart from the numbers making little sense, for those sort of numbers I think you might consider some sort of subscription model at least that way you would always have the most up to date version

As above what sort of software do you need 40k

 

[Paul Kelly ICHYB]

The simple answer is 'yes'.

What we all want to know is what you do and what the software is for? It has to be extremely specialist - many mainstream products have lesser known open source or cloned feature packages.

 

[Ozzy]

Can I deduct the software cost from my profit

As others have already said, yes absolutely software needed for your business is a business expense and tax deductable.

Although I also share everyone else's thoughts, that's some damn expensive software. Not unreasnable, there are many specialist applications out there that can be expensive from the outside looking in, so I'd just say make sure your business plan and forecasts account for the software and demonstrate a real return on investment.
Are there licence rental options, subscription options, open source options?

[edit] = there may also be financing options available if the financial forecasts stack up

 

[Mark T Jones]

I will add to the above- you can probably offset it in one year, but it may be beneficial to spread the tax claim

 

[Gecko001]

With regard to expensive software, there is certainly software out there costing £40,000 and more. For example, CGI software for movies, stress engineering software for the aviation industry etc.

 

[Mark T Jones]

With regard to expensive software, there is certainly software out there costing £40,000 and more. For example, CGI software for movies, stress engineering software for the aviation industry etc.

Millions even.

My brother made loadsamoney working for a large software house - most of their sales force couldn't be bothered with anything under half a million, so he picked them all up bang, bang, bang

 

[JEREMY HAWKE]

40K on software is OK
If your turning over 2 million
How can you make a business out of that

 

[beandigital]

Its specialist software in the electronic sector. I think actually I can get it a bit cheaper and probably make more turnover then I specified. I just wanted to know if I could add this as a business expense,

 

[WaveJumper]

I would think seriously about talking to an accountant and get the foundations right in your business before you go any further

 

[JEREMY HAWKE]

I would think seriously about talking to an accountant and get the foundations right in your business before you go any further

This is the best advice because this does not look good

 

[Johnny Be Good]

We did spend over £400k back in 2015 in our business with a profit a little bit more than 600k so spending a lot of money is not an issue however we future proof our company with heavy machinery and automation that it all paid back due to us being less dependant on humans. And we did turnover around 1.5M

Now you only making 60K and you will be buying 40K of software, either someone has promised you the earth or you are hyping yourself off.

I always found that if one company charges you loads for something there is always another one or there is another way to do a similar thing for much much less.

They wanted me to spend over £100K on software to computerised the warehouse. I found an app called bubble.io and taught myself how to program it as it was very easy, worked with a forum and now we are running a full app on a $200 a month subscription that is fully tailored to our specs and we do not need a software engineer anytime we need a minor modification as i can make the changes myself. I am not a computer scientist, i am only a microbiologist!

Sometimes in business we get super-excited and think like some people think that if I would go to university I will end up with a very well paid job. Ask other people also online in your field how they are doing the thing you are trying to achieve without spending 2/3s of your profits...

 

[Daybooks]

Apologies as only just seen this post.

The answer is you have options, which you need to understand fully. A probable outcome is that your taxable profit will be reduced by the cost of the software - but why is important if not critical.

As a sole trader you have the option of using the cash basis if your turnover is below the applicable threshold otherwise you must use the accruals basis. This must not come as a surprise to you.

The choice is yours; make an informed decision. I don’t know all the facts to make an informed decision.

 

[paulears]

Odd he has never been back to respond, despite logging in?

 

[JEREMY HAWKE]

If you have spent 80 per cent of to on a floppy disk then there may not be enough funds to cover the internet bill