Laptop depreciation

[LoneStar]

Hi,

Can I depriacete a laptop (cost £780 when new) by 100% - i.e. include laptop purchase under expenses rather than fixed assets?

 

[Crowy2004]

Hi,

Can I depriacete a laptop (cost £780 when new) by 100% - i.e. include laptop purchase under expenses rather than fixed assets?

This would normally be treated as a capitalised item and depreciated over the expective life of the asset. Personally I would think straight line over 3 years would be satisfactory.

In respect of taxation implications, by placing it as a fixed asset you would get 100% as the AIA exemption, which permits assets such as laptops to get 100% tax releif on the first £50,000 capital purchases made.

 

[KidsBeeHappy]

Nah! Bung it in consumables. I'm lucky to get a year out of our ones!!

It makes no difference for tax purposes, same number drops out at the bottom.

 

[MyAccountantOnline]

Hi,

Can I depriacete a laptop (cost £780 when new) by 100% - i.e. include laptop purchase under expenses rather than fixed assets?

You should capitalise this ie show it as a fixed asset on your balance sheet and write it off over its useful life.

For tax purposes you can claim the 100% Annual Investment Allowance assuming you havent used it up. Have a read here - http://www.hmrc.gov.uk/manuals/camanual/ca23081.htm

I definately wouldnt recommend putting it as a expense on your tax return - first of all its wrong and second you leave yourself open to an HM Revenue & Customs Enquiry if you do things like this.

 

[KidsBeeHappy]

It depends on what you do with them. If you buy laptops most years, and they effectively a "disposable" purchase, then they're ordinary, normal expenditure, they're not an investment, and not something that you plan to use for many years to generate future revenue streams for your business.

If you're spending thousands on a good one, and you maintain, update, fix and upgrade, then yes, capital and fixed assets is probably the way to go.

If you buy 2 a year, every year, and they are constantly being replaced, have a life expectancy counted in months, and are budget amounts, then I'd put to P&L (although others would maybe do differently)

 

[Jaykay]

As far as our friends at the tax office are concerned, it matters not how long the item lasts. The test as to whether it is included as a fixed asset is that it is DESIGNED to last for longer than a year.

Ignoring built in obsolescence and the fact that one may need to replace a laptop every 6 months, it is a fixed asset. You may have 2 a year but they are fixed assets on the balance sheet.

You mentioned that there is no difference between writing it off as repairs and renewals or claiming Capital Allowances which is true today. However, the 100% AIA is running now but it will revert to 20/40/25 % at the whim of the government of the day.

 

[David Griffiths]

As far as our friends at the tax office are concerned, it matters not how long the item lasts. The test as to whether it is included as a fixed asset is that it is DESIGNED to last for longer than a year.

Ignoring built in obsolescence and the fact that one may need to replace a laptop every 6 months, it is a fixed asset. You may have 2 a year but they are fixed assets on the balance sheet.

You mentioned that there is no difference between writing it off as repairs and renewals or claiming Capital Allowances which is true today. However, the 100% AIA is running now but it will revert to 20/40/25 % at the whim of the government of the day.

I've got a file punch on my desk that will clearly last a few years. I'm not going to treat that as a fixed asset.

Most businesses set levels at which they will expense equipment, and £500 is neither uncommon nor unreasonable. Most laptops cost well under that and expensing them is a perfectly valid way to treat them.

 

[mr. mischief]

Glad Dave posted this, I was going to make much the same post myself. Keep it simple - anything under £500 is expensed.

 

[KDMINX]

I think 6 months is an acceptable lifespan for a laptop (well mine don't seem to last much longer than that!) If you use them all day every day and take them out with you every day, they: wear out, get stolen, break, are dropped, etc quite quickly.

 

[KidsBeeHappy]

My hubby's did a lot of high speed travelling. Off the front seat of the van, every time he braked!!

 

[David Griffiths]

My hubby's did a lot of high speed travelling. Off the front seat of the van, every time he braked!!

Hmmm. I don't think you'll get many orders to deliver fragile parcels from this forum!

 

[taxattack]

It's worth remembering that when an item on which AIA has been claimed is disposed of, the disposal proceeds should be deducted from the relevant pool. In other words, it cannot be forgotten about in the years following purchase, unlike ordinary expenditure.

Chris

 

[KidsBeeHappy]

Hmmm. I don't think you'll get many orders to deliver fragile parcels from this forum!

Hubby not allowed to deliver. Hubby was strictly house clearance!!

 

[natalia191180]

According policies in my group 3 years- straight line

 

[KidsBeeHappy]

Looks to me that this is a bit of policy gone mad.

In reality. You buy a laptop for say £500. It just dropped, carried, moved, the connections etc get a bit loose, and you replace somewhere between 12 & 18 months. It basically goes in the bin, because by this time the batteries knackered, it's stop charging properly and prone to blue screen memory dump syndrome.

In the tax comp, you are claiming 100% AIA, so as far as tax goes, it's written off year, 1, no balancing allowances because it's just a load of plastic scrap at the end.

But, in our accounts, we've decided to capitalise it, to spread the cost of acquisition over 3 years (which if it's done pro rata is over 4 years accounts). So, Y1, we have a depreciation charge of £150, and Y2, we have a write off of £350, plus another £150 of the first year of depreciation of another computer which you've bought to replace the first one. That's not a true and fair view - the laptop isn't worth £350 in year 2, and definitely not worth anything in year 3.

Accounts are about showing what has happened in the business, and are about reflecting reality, not implementing accounting policies for accounting policies sake. If laptops are budget, and replaced frequently the reality is that they are an on-going revenue expense, so why dress it any differently?

How helpful are account for managment purposes if the fixed assets are stuffed with a load of fixed assets where the book value has nothing to do with reality.

So, go-on then, lets apply it really, really correctly. Lets capitalise the laptop, depreciate it over 3 years, and then at the end of the year we'll do a fixed asset write down to restate the book value to its NRV.........Nil value!!! P&L charged with £150 of depreciation and £350 of asset write down.

 

[Jenni384]

I think where assets like laptops are concerned, it has to depend on the business. For some people a laptop is disposable and will not last 12 months. I don't see any problem with expensing it in this case, especially if its value is under a reasonable de minimis like £3-500.

For other people, it might last a few years. One of our office PCs is a laptop with external monitor etc and I expect it to last more than 12 months, so it's an asset.

They need looking at on a case by case basis.

No depreciation method will be perfecly accurate for every asset but a bit of common sense is required.

 

[Zeno]

Ah, this is the part of the job I love:-

Client - "Why is my van shown in motor vehicles at a NBV of £10k? According to Parker's it's not worth anything like that?"

Me - "Well, you see the NBV is not supposed to represent the open market value of the vehicle"

Client "Ah, I see... What does it represent then?"

Me "Well, it is the original cost less the depreciation"

Client "But should the depreciation not show what the van has lost in value"

Me "Not really, the depreciation is an estimate of the diminuation in value of the asset spread across the esimated useful economic life of said asset"

Client "Eh? Why can't you speak English?"

Me "OK, we believe the Van will last you for 4 years so we write this cost off in 4 equal installments over this period. You paid £20k for the van and have had it for two years so we have written £10k off and £10k is remaining".

Client "I see now, sort of. Anyway, moving on what's this deferred tax all about...?"

 

[elaine@cheapaccounting]

According policies in my group 3 years- straight line

what does this mean?

 

[elaine@cheapaccounting]

Ah, this is the part of the job I love:-

Client - "Why is my van shown in motor vehicles at a NBV of £10k? According to Parker's it's not worth anything like that?"

Me - "Well, you see the NBV is not supposed to represent the open market value of the vehicle"

Client "Ah, I see... What does it represent then?"

Me "Well, it is the original cost less the depreciation"

Client "But should the depreciation not show what the van has lost in value"

Me "Not really, the depreciation is an estimate of the diminuation in value of the asset spread across the esimated useful economic life of said asset"

Client "Eh? Why can't you speak English?"

Me "OK, we believe the Van will last you for 4 years so we write this cost off in 4 equal installments over this period. You paid £20k for the van and have had it for two years so we have written £10k off and £10k is remaining".

Client "I see now, sort of. Anyway, moving on what's this deferred tax all about...?"

And we had to learn all of this rubbish to pass exams - would love to hear how you explained deferred tax

 

[GaryMc]

And we had to learn all of this rubbish to pass exams - would love to hear how you explained deferred tax

Deferred tax is there because auditors are too stupid to understand real tax. We, therefore, have to make up something that they can tick and bash and reconcile.

That is what we were taught at BPP.

 

[Zeno]

And we had to learn all of this rubbish to pass exams - would love to hear how you explained deferred tax

The thing is, withn AIA I find that I have to incude this even on Small Companies to make sense of the accounts (and a true & fair view etc).

I sometimes explain it but more often than not when I explain that they don't actually have to pay it they tend to lose interest.

 

[sfr]

I think where assets like laptops are concerned, it has to depend on the business. For some people a laptop is disposable and will not last 12 months. I don't see any problem with expensing it in this case, especially if its value is under a reasonable de minimis like £3-500.

For other people, it might last a few years. One of our office PCs is a laptop with external monitor etc and I expect it to last more than 12 months, so it's an asset.

They need looking at on a case by case basis.

No depreciation method will be perfecly accurate for every asset but a bit of common sense is required.[/QU

This is helpful I am in my first year of trading and bought a netbook for £350, it will last 18 months probably, but doubt after 12 months it has any resale value to me it seems overkill to treat as an asset and introduce all the hassle of balance sheet entries and depreciation. Does the Tax Man really mind if I treat as an expense , especially as with AIA it makes no difference to my tax bill if I expense it or use the AIA ? And as for the accounts for company house presumably it is ok to expense it as well?

 

[sfr]

my laptop cost 350 it may well last 18months it just seems overkill to treat is as an asset surely ? Common sense suggests it should be an expense

and if I buy some software for £100 surely that is not an asset ?

why doesn´t hmrc provide definitive guidance , I tried to call my tax office it is always engaged

 

[elaine@cheapaccounting]

This is helpful I am in my first year of trading and bought a netbook for £350, it will last 18 months probably, but doubt after 12 months it has any resale value to me it seems overkill to treat as an asset and introduce all the hassle of balance sheet entries and depreciation. Does the Tax Man really mind if I treat as an expense , especially as with AIA it makes no difference to my tax bill if I expense it or use the AIA ? And as for the accounts for company house presumably it is ok to expense it as well?

You co house accounts and HMRC will be the same - only difference is that HMRC will require full accounts, Co House - abbreviated.

The tax comp is the place to make such adjustments and then on the CT600 show AIA