Laptop, Expenses and Corp Tax Relief

[randysavage]

Hi

Noob on this forum, been contracting thru a limited company for a couple of years now. Apols if this question has been posed before - I did a search but nothing matched properly.

In Nov 2006 I purchased a laptop for £1200. I put this through my company expenses in late 2007
Over 3 years later I'd like to replace this laptop with a better one, and this new one costs more - approx £1300. Importantly, I plan on selling the old one for around £800

With regard to expenses and corporation tax, how are the old and new laptops treated? For example, is the old one retrospectively struck off as an allowable expense?

My account replied to my question with this: "The new one is an allowable expense and is entitled to annual investment allowance for corporation tax purposes. The unused investment allowance on the old one is added back , i.e is chargeable for corporation tax purposes"

I didnt fully understand this.

Using the numbers I provided, are they saying that although my original purchase gave me £1200 of tax relief, disposing of it for £800 effectively reduces my relief on that item to £400 retrospectively? If so, how am I retrospectively taxed on the £800 difference?

If I then go and purchase another machine for £1300, I assume my relief is the full £1300 in this tax year?

My main concern is to make the disposal and purchase of the new laptops as tax efficient as possible

I don't expense a great deal, so please excuse any fundamental misunderstandings!

Thanks, MM

[Sockpuppet]

Easy. You'll only get £400 on the old laptop in tax relief as that is all the asset has cost you.

The tax relief on the new laptop is worked out using the data rates HMRC set. I believe its 50% for the first year and 25% after that.

[Olly]

oops..I just bought a £600 quid laptop and removed the fulll amount from my Ltd as expenses.....whilst that's still correct I'm guessing I'd be only detailing 50% of 600 on the CT return.

[Clare@InTouch]

oops..I just bought a £600 quid laptop and removed the fulll amount from my Ltd as expenses.....whilst that's still correct I'm guessing I'd be only detailing 50% of 600 on the CT return.

No - the first £100,000 of capital expenditure is allowable in full, so you'll get £600 off in year one. If you sold the asset at a later date there may be a charge - effectively a reversal of the allowance you had overclaimed, based upon the proceeds of sale.

CA23081 - PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: outline

[randysavage]

No - the first £100,000 of capital expenditure is allowable in full, so you'll get £600 off in year one. If you sold the asset at a later date there may be a charge - effectively a reversal of the allowance you had overclaimed, based upon the proceeds of sale.

CA23081 - PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: outline

Hi Clare

So with specific reference to my example, I would have got £1200 of relief on the old laptop in the first year, then decreasing amounts in subsequent years?

Who would be able to confirm that charge? Can't find in on the HRMC website and my rep at SJD doesnt seem too on the ball / proactive.

Thanks

[mines a pint of mild]

First time for me on this forum so here goes ......

Not sure if you got a satisfactory answer to your question. As you received full tax relief on the old lap top and you expect to sell this laptop for £800, you will effectively make a profit of £800 and you will therefore be taxed on this amount. The new laptop will be treated the same as the old one and therefore the full cost of the new laptop will be deducted from profit. I had a similar situtation and this is how it was explained to me by my accountant.

[northernladuk]

Ok just to throw a question about a similar situation I am in I dropped a brand new (2 months old) netbook which the repairs said wasn't cost effective to repair so bought a new one. Can I write the old one off as a total loss or do I have to follow some procedure to show a claim or the damage? btw they are only £250 a pop.

[Stag Cozier]

First time for me on this forum so here goes ......

Not sure if you got a satisfactory answer to your question. As you received full tax relief on the old lap top and you expect to sell this laptop for £800, you will effectively make a profit of £800 and you will therefore be taxed on this amount. The new laptop will be treated the same as the old one and therefore the full cost of the new laptop will be deducted from profit. I had a similar situtation and this is how it was explained to me by my accountant.

Not quite right or there yet.

Questions to the OP to ask their accountant first:

1. When exact was the old computer put into the business?
2. Where was it analysed in the company accounts? Capitalised or written off as an expense in that year?
3. If capitalised, what is the net book value on the balance sheet of the asset now i.e. what is it's value showing on your last set of accounts?
4. If capitalised, is it still showing as a separate item on the capital allowances calculation or stuck in a "general pool"?

Before anyone can give you a proper answer, you need to know the above.

[Stag Cozier]

Ok just to throw a question about a similar situation I am in I dropped a brand new (2 months old) netbook which the repairs said wasn't cost effective to repair so bought a new one. Can I write the old one off as a total loss or do I have to follow some procedure to show a claim or the damage? btw they are only £250 a pop.

The first knackered netbook can be classed as a straight expense and written off as a cost/expense in the current accounting year.

Your spanking new netbook should be treated the same i.e. an expense rather than capitalised as an asset of the company (assuming it is just as cheap as the first one )

[zedAccounts]

>Capitalised or written off as an expense in that year?

I seem to recall reading a "rule of thumb" of if less than £100 then treat the item as a revenue expense, otherwise as capital expediture. It seems to me a £1000 laptop ought to be treated as a company asset, and CA/AIA only applies to company assets anyway.

ZED.