Expense or capitalise computer monitors?

[ktsotr]

Hi, I just received my year end accounts for review from my accountant. 1st set of accounts to be completed by them. I noticed that a laptop and monitor costing approximately £400 each were expensed rather than capitalised.

Is this normal?. I have always capitalised such items so wondering if here is a rational for accountants doing this?

 

[DontAsk]

I do my own bookkeeping and always expense such things. I don't leave decisions like that to the accountant. I find it's a lot easier for small amounts like this that messing about with depreciation, etc.

It reduces your profit for the year in question, by the full amount, so you pay less tax.

 

[MyAccountantOnline]

Hi, I just received my year end accounts for review from my accountant. 1st set of accounts to be completed by them. I noticed that a laptop and monitor costing approximately £400 each were expensed rather than capitalised.

Is this normal?. I have always capitalised such items so wondering if here is a rational for accountants doing this?

Yes I'd say it is normal.

When deciding whether expenditure is capital or revenue a number of factors are considered. Materiality will be one of them and it's not unusual to see costs of less than £500 expensed.

Generally for tax purposes (unless the expenditure qualifies for the Super Deduction) it wont make any difference.

Do however ask your accountant - it's a valid and reasonable question to ask.

 

[HFE Signs]

Yes, this way you deduct the entire cost in a single year

 

[DWS]

You may also want to consider if you are a sole trader or a Company, if sole trader and your profits are low then expensing the item would be a waste and capitalising and being able to claim in later years when profits are higher may be preferable.

 

[ktsotr]

Thanks for the reply all. True it does cut down on additional entries for depreciation and CA. Looks like I have to delete and re-enter my sage transactions to reflect this. It’s small limited company by the way.

On a separate subject regarding Directors loan over £10k, by that I mean £25k from the onset charged at 2% official rate of interest. This will be paid back in full less than 5 months of the year end so not subject to other hmrc penalties. The loan will be paid back on time. Other options like dividend or bank loan will be costly or show up on credit rating. There is more than enough funds in the company to cover this. I can speak to the accountant about all the required paperworks to put this in motion. I guess the question on this as well is if this is normal?

This just occurred to me while talking to a partner in a law firm who moaned about senior partners taking huge sums of loans from the business. I then thought, hey that could resolve my issue

 

[MyAccountantOnline]

Thanks for the reply all. True it does cut down on additional entries for depreciation and CA. Looks like I have to delete and re-enter my sage transactions to reflect this. It’s small limited company by the way.

....

I wouldn't do that. I'd ask your accountants to send you a year end journal so that the balances match the financial accounts.

 

[MyAccountantOnline]

..

On a separate subject regarding Directors loan over £10k, by that I mean £25k from the onset charged at 2% official rate of interest. This will be paid back in full less than 5 months of the year end so not subject to other hmrc penalties. The loan will be paid back on time. Other options like dividend or bank loan will be costly or show up on credit rating. There is more than enough funds in the company to cover this. I can speak to the accountant about all the required paperworks to put this in motion. I guess the question on this as well is if this is normal?

..

Do you mean the company owes you or you owe the company?

 

[ktsotr]

Do you mean the company owes you or you owe the company?

I want to take a directors loan from company. This is a one man business

 

[Bobbo]

I do my own bookkeeping and always expense such things. I don't leave decisions like that to the accountant. I find it's a lot easier for small amounts like this that messing about with depreciation, etc.

It reduces your profit for the year in question, by the full amount, so you pay less tax.

Such things (computers etc) would likely qualify for Annual Investment Allowance thereby getting the entire cost as a capital allowance in the year of purchase. I.e no impact on the tax bill.

 

[DontAsk]

Such things (computers etc) would likely qualify for Annual Investment Allowance thereby getting the entire cost as a capital allowance in the year of purchase. I.e no impact on the tax bill.

Expense it, profit is lower, tax is lower.

 

[ktsotr]

I have now edited/deleted the transactions from sage to reflect it as an expense as well.

 

[Bobbo]

@DontAsk

You are patently incorrect.

If you expense something, yes profit is lower so tax is lower.

If you capitalise it, where Annual Investment Allowance is available (as it would be for computer equipment as referred to by OP) the full cost would be available as a capital allowance making the tax the same as if it had been expensed.

However, because of the Super Deduction available on qualifying purchases between 1 April 2021 and 31 March 2023 (whether this will be ended early given the cancellation of the planned corporation tax increases we will see) tax would in fact be lower if an item is capitalised because 130% of the cost would be available as a capital allowance thereby reducing taxable profit.

 

[DontAsk]

@DontAsk

You are patently incorrect.

Really? Try reading what I said, rather than what you think I might have said, "I ... always expense such things"

If you expense something, yes profit is lower so tax is lower.

Thank you for agreeing with me

 

[Bobbo]

Really? Try reading what I said, rather than what you think I might have said, "I ... always expense such things"


Thank you for agreeing with me

I did read what you said. You always expense such things. Try perhaps reading what i've said too...

I should have added to my sentence "If you expense something, yes profit is lower so tax is lower - than compared to capitalising and only obtaining standard writing down allowances."

But, as I set out, the existence of Annual Investment Allowance and Super Deduction means that not only is the tax result the same expensing v capitalising, the tax is potentially lower capitalising.