Assets Vs. Expenses

[roy75]

Hello

Can someone please advise what is the maximum allowed spending that would still be considered as an expense rather then company asset.

For example, suppose I bought a laptop through the company worth 100£, is it an asset or an expense? Now suppose this laptop cost 1000£, is it still the same?

Thanks

[cojak]

Hello

Can someone please advise what is the maximum allowed spending that would still be considered as an expense rather then company asset.

For example, suppose I bought a laptop through the company worth 100£, is it an asset or an expense? Now suppose this laptop cost 1000£, is it still the same?

Thanks

Definition of an asset:

an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

An expense is not regarded as haviing value once spent/used and therefore cannot be depreciated over time (accommodation, travel, subsistence etc).

So your laptop will be cosidered an asset, whether it be £100 or £1000 in value.

[roy75]

Definition of an asset:


An expense is not regarded as haviing value once spent/used and therefore cannot be depreciated over time (accommodation, travel, subsistence etc).

So your laptop will be cosidered an asset, whether it be £100 or £1000 in value.

Thank you.

Reason for asking is because I remember one accountant mentioning a threshold, so below a certain amount the purchase can be audited as a one off expense.

[cojak]

Thank you.

Reason for asking is because I remember one accountant mentioning a threshold, so below a certain amount the purchase can be audited as a one off expense.

I'm not an accountant so one of the regulars will be able to discuss the fine details of this.

[TheCyclingProgrammer]

You don't have to class something as an asset if it's not expected to have a long shelf life or much residual value after a year.

I used to capitalise my company phone which cost £600 but seeing as I upgrade every two years I chose to treat it as expense this year. My accountant was fine with this.

I wouldn't bother capitalising a £100 laptop at all.

Companies generally have a threshold below which they will just write off as an expense. The bigger the company, the higher this is likely to be.

You should discuss the best limit for you with your accountant but there is no hard and fast rule. Assuming it qualifies for capital allowances, you get full tax relief for expenses and assets when you buy them, but an asset will depreciate over a period in your accounts.

[cojak]

So there you have it.

[roy75]

You don't have to class something as an asset if it's not expected to have a long shelf life or much residual value after a year.

I used to capitalise my company phone which cost £600 but seeing as I upgrade every two years I chose to treat it as expense this year. My accountant was fine with this.

I wouldn't bother capitalising a £100 laptop at all.

Makes sense the question is where does the boundary lies? Are there not set rules for these kind of things?

And on the flip side a 600£ phone is still worth something after two years, should that money not go back to the company assuming it hasn't been scrapped?

[ASB]

There is not a hard and fast rule.

say you have a 600 quid phone and treat it as an expense. Thats 600 off the profit.

Then you get 100 quid for the phone. That is obviously the company money. In this case it is then other income.

personally I would capitalise a 600 quid phone. But expensing it is probably fine.

equally I would expense a 2k software purchase.

[Contreras]

Makes sense the question is where does the boundary lies? Are there not set rules for these kind of things?

Not that I'm aware of. A couple hundred quid seems to be about the norm. If you think the asset has significant resale value then it's worth questioning otherwise I would trust your accountant's opinion. It doesn't make any difference to the tax owed.

And on the flip side a 600£ phone is still worth something after two years, should that money not go back to the company assuming it hasn't been scrapped?

What money? If the asset is sold then yes definitely that belongs to the company (don't forget to charge VAT if applicable). If it's scrapped then the asset value can be written off in the accounts, but you may as well just allow it to depreciate to zero by whatever method your accountant uses.

[jamesbrown]

Agree with the other posters, there's no precise definition. Many accountants suggest around £500 as a rule of thumb. To give an example, I purchased two monitors separately from a PC. I capitalized and depreciated the monitors along with the PC because, even though the monitors were relatively inexpensive, they were conceptually part of the same asset. I could've expensed them in principle. Even if an item has a residual value over multiple years, your accountant may prefer to expense that item, rather than capitalize it (if they can reasonably do so), because this avoids the hassle of keeping the item on the books and depreciating it each year. Also, note that, while an expense will appear in your profit and loss account for the year it was purchased, the depreciation charge will appear each year going forward (until the asset is written off).