Expensing vs. Capitalising of Computer Equipment Purchases

[Guest22]

I've been discussing with my accountant recently whether I should capitalise purchase of computer equipment as it seems to be fairly undefined what should and shouldn't be classed as an expense or an asset that depreciates.

My accountant tells me that, generally, purchases over £1000 should be capitalised, but, also, that there is no specific guidance and it doesn't really matter as far as tax inspection is concerned. I can't see any financial benefit to capitalising a purchase, and it just seems like an extra admin overhead to do so. So, I am thinking, why would anyone capitalise computer equipment?

My recent purchase was of a NAS for less than £600. I am about to sell my personal laptop to my company for £1000. I am planning on purchasing a computer for the company in the near future for around £2500 - £3000. I'm thinking of just expensing all of these based on my understanding. Is there anything I am missing?

Thanks in advance.

[Alan @ BroomeAffinity]

This might be of benefit to you: Asset - Wikipedia, the free encyclopedia

Although do bear in mind that you get 100% tax allowances on asset purchases so the tax treatment ia different but the end position is essentially the same.

[Guest22]

This might be of benefit to you: Asset - Wikipedia, the free encyclopedia

Although do bear in mind that you get 100% tax allowances on asset purchases so the tax treatment ia different but the end position is essentially the same.

This is kind of what I mean. Asset purchases are 100% tax-deductible, as is computer equipment claimed as expenses. The end result is the same, financially; so, I'm not sure why anyone would choose to mark computer equipment as assets, no matter what the purchase cost is.

Edit: I've just read this Contractor UK guide which links to this very useful HMRC page which links to a more specific page on capital expenditure. It appears that computer equipment is generally considered to be a capital expenditure and therefore is not allowed as a business expense. The ability to capitalise it allows you to get the tax relief from it over time (depreciation) which you would normally get if it were allowed as a business expense. So, now I'm a little confused. FreeAgent states that computer purchases less than £500 may be expensed. And my accountant says that computer purchases less than £1000 may be expensed. Is this because HMRC are generally cool with such low-cost equipment being expensed? There's nothing in the guidance regarding this.

[borderreiver]

Accounting for computer hardware as company assets means your LTD has improved equity - until the hardware has been depreciated, of course - so it may make some difference regarding how much dividend you can take out of the company.

[Greg@CapitalCity]

So, now I'm a little confused. FreeAgent states that computer purchases less than £500 may be expensed. And my accountant says that computer purchases less than £1000 may be expensed. Is this because HMRC are generally cool with such low-cost equipment being expensed? There's nothing in the guidance regarding this.

You won't find a numerical value in the definition of an asset, so you need to form your own view while complying with relevant accounting standards. Your accountants view is £1,000, Freeagent is £500 - me? I tend to put it around £200-£400 depending on what it is. For the HMRC, I don't think they would really care when we are talking about assets of this sort of value as the tax treatment is exactly the same whether you expense them, or capitalise them.

[Jessica@WhiteFieldTax]

You won't find a numerical value in the definition of an asset, so you need to form your own view while complying with relevant accounting standards. Your accountants view is £1,000, Freeagent is £500 - me? I tend to put it around £200-£400 depending on what it is. For the HMRC, I don't think they would really care when we are talking about assets of this sort of value as the tax treatment is exactly the same whether you expense them, or capitalise them.

I'd agree with Greg - the threshold is largely related to the size of the business - what Tesco would expense, what I would expense for my business, and what I may recommend a client to expense are all different. All other things being equal £25k of spend is written off in full anyway via adjustment in the tax computation, so its a accounting concern rather than tax, although it doesn't aid transparency. Keeps us in jobs though