Real cost of new equipment?

[nfoote]

So I'm looking to purchase a new computer and equipment through MyCo.

The catalyst is a new work-from-home contract I've got for the next few months but of course the machine would end up being used for personal use outside of office hours.

My accountant informed me because I'm on the flatrate VAT scheme that if I spend 2000quid on one receipt I can claim back the VAT. I also understand that because the machine would be a business expense it would reduce MyCo's profit and therefore CorpTax bill.

Just wondering if I'm doing the calculations right here?
2000GBP spend
Claim back 17.5% VAT (350GBP)
MyCo profits reduced by 2000GBP, therefore 2000x0.21 less Corp tax

Total actual eventual cost to MyCo 2000-350-420 = 1230GBP

Is that correct? Or am I over-simplifying one or two of the accounting steps here?

One last point, one site I was looking at (to arrive at the above figures) mentioned depreciation, do you account for that at all on Computer Equipment (that becomes worthless in 2-5 years)?

[Clare@InTouch]

The accounts will always show depreciation of the asset over it's expected life, but for tax purposes we use Capital Allowances instead. Your company can claim 100% annual investment allowance in year one, meaning you can write the whole lot off, even though the accounts will show it written off over several years.

Your calculations look fine - an expense of £2,000 will reduce your tax by 21% = £420.

[DeludedAussie]

The accounts will always show depreciation of the asset over it's expected life, but for tax purposes we use Capital Allowances instead. Your company can claim 100% annual investment allowance in year one, meaning you can write the whole lot off, even though the accounts will show it written off over several years.

Your calculations look fine - an expense of £2,000 will reduce your tax by 21% = £420.

More then that No? He also saves VAT?

[Clare@InTouch]

More then that No? He also saves VAT?

He can reclaim the VAT yes, and the CT will reduce by 21% of the net amount.

[Wanderer]

Just wondering if I'm doing the calculations right here?
2000GBP spend
Claim back 17.5% VAT (350GBP)
MyCo profits reduced by 2000GBP, therefore 2000x0.21 less Corp tax

Total actual eventual cost to MyCo 2000-350-420 = 1230GBP Is that correct?

I'm confused. Shouldn't that be a ticket price of £2350 inc VAT, reclaim £350 VAT, avoid £420 CT = net cost of £1580 ?

Still it's a third cheaper than buying a new 'puter out of your own pocket which is nice.


And after a year, you can do what you want with the computer because it's written off as a capital cost, true?

[pmeswani]

And after a year, you can do what you want with the computer because it's written off as a capital cost, true?

Not necessarily. If your Accountant is worth their salt, they would work it out so that the business owns the asset over a number of years (depricate(?) the cost of the asset). If you are doing your own accounts, I wouldn't assume that your business does not own the asset after a year, just because there is no further payments to be made in the following year.

[MarillionFan]

So I'm looking to purchase a new computer and equipment through MyCo.

The catalyst is a new work-from-home contract I've got for the next few months but of course the machine would end up being used for personal use outside of office hours.

My accountant informed me because I'm on the flatrate VAT scheme that if I spend 2000quid on one receipt I can claim back the VAT. I also understand that because the machine would be a business expense it would reduce MyCo's profit and therefore CorpTax bill.

Just wondering if I'm doing the calculations right here?
2000GBP spend
Claim back 17.5% VAT (350GBP)
MyCo profits reduced by 2000GBP, therefore 2000x0.21 less Corp tax

Total actual eventual cost to MyCo 2000-350-420 = 1230GBP

Is that correct? Or am I over-simplifying one or two of the accounting steps here?

One last point, one site I was looking at (to arrive at the above figures) mentioned depreciation, do you account for that at all on Computer Equipment (that becomes worthless in 2-5 years)?

No.

£2000 spend is £1702 + £298 VAT. You can claim back the £298

Then reduce Myco profits by £1702. 21% of £1702 is £357, so cost is £1344 (if you want to look at it that way)

Assets will then depreciate but you don't need to worry about that.

If you wish to make the best of equipment, purchase it through your MyCo. Printer paper, stationary, books, pen drives, storage, mobile phones, renting your own office space from yourself at home are all legitimate expenses.

[northernladuk]

No.

£2000 spend is £1702 + £298 VAT. You can claim back the £298

Then reduce Myco profits by £1702. 21% of £1702 is £357, so cost is £1344 (if you want to look at it that way)

Assets will then depreciate but you don't need to worry about that.

If you wish to make the best of equipment, purchase it through your MyCo. Printer paper, stationary, books, pen drives, storage, mobile phones, renting your own office space from yourself at home are all legitimate expenses.

Agreed but the office space is one for debate. Yes you can claim it but how much seems to be a difficult one. I know people at my gig blatently taking the piss and charging everything as a percentage of the size of house. Gas, electric water etc but they don't work there full time. My last two accountants have advised some measly figure like £260 odd a year or something. I don't work from home as my main base it has to be said.

[d000hg]

Agreed but the office space is one for debate. Yes you can claim it but how much seems to be a difficult one. I know people at my gig blatently taking the piss and charging everything as a percentage of the size of house. Gas, electric water etc but they don't work there full time. My last two accountants have advised some measly figure like £260 odd a year or something. I don't work from home as my main base it has to be said.

There are two figures I've come across.

On the one hand I saw somewhere on HMRC, a formula which was basically:
total costs * (office floorspace / total floorspace) * (fraction of time used for business use)
This gives me about £100/month since I work full-time from home.

On the other hand a typical tiny figure of £4/month or similar is often mentioned as a guideline for those running a home office but working on site full-time.

It's a big difference obviously... I think if you don't work at home you'd want to be careful as it has a bad smell, easy to portray it like MPs' expenses scandal. Claiming you maintain an office to do your accounts and then claiming for a load of stuff you use a few minutes a month is a bit dodgy.

I can't find the HMRC page with that formula, anyone?

edit:

http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm

I'm a bit confused by the proportion of time a room is used for business use. One of those examples seems to claim taking a fraction of 24 hours, so even a full 8-hour day is only 1/3. But that's kind of dumb if you don't use the room for anything else... businesses don't get to claim 2/3 discount for not being open 24 hours.

Any clarifications?

[THEPUMA]

No.

£2000 spend is £1702 + £298 VAT. You can claim back the £298

Then reduce Myco profits by £1702. 21% of £1702 is £357, so cost is £1344 (if you want to look at it that way)

Assets will then depreciate but you don't need to worry about that.

If you wish to make the best of equipment, purchase it through your MyCo. Printer paper, stationary, books, pen drives, storage, mobile phones, renting your own office space from yourself at home are all legitimate expenses.

Plus there is a personal tax saving when you come to extract the £1344 from the company. Assuming there is no cost of extracting the computer, which in practise there is unlikely to be.