newbie question about hardware purchasing

[pr1]

I hear this all the time on here, but it's not just that. If you want to buy a £2000 incl VAT laptop you're saving £333 straight away in VAT, then another £333 in corporation tax making it a cost to your business of £1300 or so.

Alternatively, you pay CT on your current profits, draw it as a dividend, pay your 20% tax and then buy the laptop inclusive of VAT.

Bag of a fag packet calcs:

Laptop Cost: £2000 incl VAT

Buying Through Company
Company Funds: £10,000
Laptop Expense: £1300
Pre Tax Profit: £8700
Corporation Tax: £1740
Post Tax Profit: £6960
Company Funds: £6960

Buying Personally
Company Funds: £10,000
Laptop Expense: £0
Pre Tax Profit: £10,000
Corporation Tax: £2000
Post Tax Profit: £8000
Dividend Withdrawal: £2400
Laptop Cost: £2000
Personal Tax @20%: £400
Company Funds: £5600

Unless I've gone very wrong somewhere (Plausible, it's early) that's a difference of £1300 to your bottom line

very good, except the OP said he wanted a ~£1K laptop...

my point was people might only "need" a £400 laptop but they'll buy a £2000 one just to 'save more tax' after seeing calcs like the above

[vwdan]

very good, except the OP said he wanted a ~£1K laptop...

I know, I've just noticed my mistake too - was gonna delete and redo. Point is it, if he's normal VAT registered it's still much the same and the saving isn't "just 20% CT as is often banded about"

[VectraMan]

I hear this all the time on here, but it's not just that. If you want to buy a £2000 incl VAT laptop you're saving £333 straight away in VAT, then another £333 in corporation tax making it a cost to your business of £1300 or so.

Alternatively, you pay CT on your current profits, draw it as a dividend, pay your 20% tax and then buy the laptop inclusive of VAT.

Bag of a fag packet calcs:

Laptop Cost: £2000 incl VAT

Buying Through Company
Company Funds: £10,000
Laptop Expense: £1300
Pre Tax Profit: £8700
Corporation Tax: £1740
Post Tax Profit: £6960
Company Funds: £6960

Laptop expense isn't £1300, it's £1667. And if you buy it personally it doesn't come out of business funds at all. I get your logic, but that's not really comparing apples with apples.

It amazes me people want to spend £2K on a laptop "to save money". Sure if it's a choice between an £1800 laptop and £2K laptop then spec it up so you can get the VAT saving, but if the business case is "I need something to do my accounts on" then you don't need to spend £2K.

[pr1]

I know, I've just noticed my mistake too - was gonna delete and redo. Point is it, if he's normal VAT registered it's still much the same and the saving isn't "just 20% CT as is often banded about"

and how many IT contractors are normal VAT registered?

[pr1]

Laptop expense isn't £1300, it's £1667. And if you buy it personally it doesn't come out of business funds at all. I get your logic, but that's not really comparing apples with apples.

It amazes me people want to spend £2K on a laptop "to save money". Sure if it's a choice between an £1800 laptop and £2K laptop then spec it up so you can get the VAT saving, but if the business case is "I need something to do my accounts on" then you don't need to spend £2K.

exactly!

[vwdan]

Laptop expense isn't £1300, it's £1667. And if you buy it personally it doesn't come out of business funds at all. I get your logic, but that's not really comparing apples with apples.

It amazes me people want to spend £2K on a laptop "to save money". Sure if it's a choice between an £1800 laptop and £2K laptop then spec it up so you can get the VAT saving, but if the business case is "I need something to do my accounts on" then you don't need to spend £2K.

I already changed it. But yes, it is apples for apples because whenever this (or many other expenses based) question comes up so many people harp on about "Oh,you're only saving a few percent it's not worrying about it" which is nowhere near the full story. If it's a legitimate and justifiable business expenses then buying it via the company will save you substantial amounts of money and it's absolutely worth while considering the business case and looking at your options.

[vwdan]

and how many IT contractors are normal VAT registered?

No idea, but I am. And my example works for Flat Rate so how about stop clutching at straws because even if you ignore the VAT element the savings are still there.

[northernladuk]

Is that really a rule?

FWIW I bought a desktop through the company not long after I first started as I was doing client work from home, and later on also bought a laptop which I mainly justified by saying "I'm an IT contractor", and although both were used on and off for genuine business work they were more often not. But my current laptop and desktop I bought personally. If something's a company asset it needs to be accounted for, and again if you sell it, whereas by owning things personally you can do whatever you want and never have to worry. In the unlikely event that an HMRC man did come round I can say "those are nothing to do with the company" and then I don't have to justify anything.

I'd have saved a bit of CT, but not VAT, so I decided it wasn't really worth it. But that's up to you.

I'm confused. You are questioning eeks statement about company asset shouldn't go in a personal machine but your example doesn't discuss that?

Dunno if it's a rule but it's common sense. When you come to sell the machine you won't be taking the card out. It's not likely to be any use so it's linked to that personal machine.

I certainly wouldn't buy kit for my personal machine through the company. I would however sell the desktop to the company at market value and then do it..... If I could justify I use it with a good amount of business use if course.

[pr1]

When you come to sell the machine you won't be taking the card out

why not?

[northernladuk]

IMO,

you need a laptop to do your work (presumably) - HMRC won't bother arguing over whether you need a £400 laptop or a £2000 laptop so go nuts - bare in mind you're only saving on the tax (20%) - you're still buying it with your (company's) money

(IANAA/IANAA)

Where as I certainly think the 'it's 20% saving' should always be considered when you are talking costs like this then it's different as the numbers suggest.

I think it's fair to bring that up when people are asking about putting coffees, sandwiches and other crap like that through. It's just not worth the saving to be buggering about. 1k+ purchases then it is.

Right idea, wrong time to apply it is say.