Selling company laptop

[jamesbrown]

Good point. Does anyone know what the time scale for depreciating an asset like this is?

Depends on your chosen method of depreciation. For example, you could depreciate it over 3 years at 1/3 per year using the straight line method. If the laptop was £1100 and the residual value was £100, that would mean a depreciation of £333.3 per year.

[VectraMan]

Depends on your chosen method of depreciation. For example, you could depreciate it over 3 years at 1/3 per year using the straight line method. If the laptop was £1100 and the residual value was £100, that would mean a depreciation of £333.3 per year.

4 years is what me/my previous accountant have used.

So after 2 years, your £2000 laptop is worth £1000 for the purposes of the balance sheet. So if you sell for £1200, you've made £200 profit in that year, but you lose the CT refund you would have got for the next two years as a result of depreciation.

But I don't think that after 4 years you can then do what you want with it. It's still legally the company's property.

I don't think FRS makes any difference. It's a sale like any other, and so you charge 20% VAT to whoever you sell it to, and pay the 13.5% (or whatever it is) of the gross to HMRC.

[Wanderer]

Not 100% sure why people write down assets over a few years - I thought it came under the "Annual Investment Allowance" which meant that we can write off the full value of an asset in the year we buy it?

Look in your accounts.

Ha, my company is a tight arse and doesn't have any assets. That's why I was wondering...

[Jessica@WhiteFieldTax]

Not 100% sure why people write down assets over a few years - I thought it came under the "Annual Investment Allowance" which meant that we can write off the full value of an asset in the year we buy it?

Almost certainly correct - but remember the depreciation rate in the accounts and the Capital Allowances rate for tax (i.e. the AIA in most cases) are different.

At the moment AIA covers most small business investment, meaning assets are written off for tax in year of purchase, but its normal for them still to be capitalised and written off over a longer period in the accounts

The reconciliation between the two is the annual tax computation, which includes capital allowances. If you are a purist you'll do a deferred tax provision as well, but most of the time we skip that these days.

[jamesbrown]

Not 100% sure why people write down assets over a few years - I thought it came under the "Annual Investment Allowance" which meant that we can write off the full value of an asset in the year we buy it?

Indeed, for CT purposes, you get full tax relief in the first year up to the annual investment allowance. Depreciating the asset reflects the cost to the company of owning the asset and, since you do get the full tax relief in the first year, it's just for accounting purposes AFAIK. It's a hassle, though, compared to expensing, so if you can reasonably get away with expensing rather than capitalising, that's preferred. For example, I think you have to pay back any tax relief obtained on an asset if you cease trading after the year in which the asset was capitalised (could be wrong, but I vaguely recall reading that).

[Wanderer]

Thanks Jessica@WhiteFieldTax, that makes sense now.

if you can reasonably get away with expensing rather than capitalising, that's preferred

So where is the line between expensing and capitalising drawn?

[Jessica@WhiteFieldTax]

So where is the line between expensing and capitalising drawn?

Judgement I'm afraid. The bigger the business the more likely you are just to write the kit off. £500 is probably a sensible threshold for most smaller businesses.

[BolshieBastard]

If its over 2 year old why would you even sell it to yourself? Just get your co to buy a new one and keep the old one 'in reserve' as it were.

[dynamicsaxcontractor]

Note: even on FRS you can still reclaim VAT on individual capital purchases above £2k+VAT. But if the purchase price is below £2k then you can't claim the VAT and so then when you come to resell the item it's treated as FRS turnover.

Its £2K inclusive of VAT.

HM Revenue & Customs: Flat Rate Scheme for VAT

It must be a single purchase of capital goods with a VAT-inclusive price of £2,000 or more. That doesn't mean you are restricted to claiming back the VAT on a single item - for example, you could buy a pizza oven, fridge and dishwasher, as long as you buy them at the same time from the same supplier and the price is more than £2,000 including VAT.

[xara]

Thanks a lot for the replies.

IMO it's a valid approach for someone in the business of technology to buy the best laptop available, keep it for 6-9 months, sell it (for the good prices one will get for 2nd hand tech that's only a generation old) and upgrade. Compared to keeping steadily-worsening technology for three years with the subtle creeping loss of productivity and compatibility that generally entails, paying for extended warranties, loss of time if it has to be sent in for repairs, etc.

Doesn't exactly sound easy to reckon this up judging from the replies so far. Yes, you can claim the VAT and CT relief; but if you then resell inside a year -- it seems quite difficult to arrive at a calculation of what the exact cost/resell cost will be.