Being savvy with your expenses is a large part of running a successful business, as is a simple way to keep your company tax efficient. Allowable business expenses for a limited company are generally defined as costs that are incurred “wholly and exclusively” for business purposes.
If you buy a new computer or upgrade your software, it’s important to understand how these expenses are treated for tax purposes. Computer equipment is a common business expense and is considered an essential asset for maintaining your business accounts, sending emails and operating your own website.
Find out how CloudCo Accountancy Group can help you navigate this common, yet multi-detailed tax treatment of computer-related purchases, when you enlist the assistance and advice of our tax and business expense experts.
If you have questions concerning the flat rate VAT scheme, how to reconcile business use vs. significant personal use, and how all of this ultimately relates to your capital expenditure; then read on, as we explain exactly how technology costs are accounted for.
Can I deduct computer purchases as a business expense?
You can indeed buy a new computer or laptop for your limited company, and claim the equipment as a capital asset, if you are using the computer for business use.
The big thing that needs to be established in terms of claiming your computer or laptop as an expense, is to determine how you are using the computer equipment on a daily basis. Is your business PC part of you company’s overall office equipment solely or, do you also use the computer regularly for personal use?
Additionally, you will need to make sure that the computer or laptop is insured properly. Even if a business isn’t responsible for insuring its building, it will need to insure the contents inside – such as computers, technical equipment and stock.
There are usually two sorts of contents insurance: replacement as new and indemnity. With indemnity cover, the wear and tear to which the item has been subject is deducted when calculating a claim. This means that if you needed to go out and replace your business computer, you might only have enough money to buy a second-hand one.
New for old cover can give you peace of mind, knowing that it doesn’t matter how old the computer was when it was damaged beyond repair, you will still be given enough of a payout to replace it with a new PC, or the modern equivalent.
Can I claim computers as business expenses?
A business PC is the most common item for a small business or limited company to expense, providing the equipment itself is used for business purposes. Any personal use must be purely ‘incidental’ or ‘insignificant’.
If there is significant personal use, then HMRC could argue that the equipment has a duality of purpose, and you could be taxed on the value of the purchase as a ‘benefit in kind’.
At CloudCo we can help you to understand exactly what the purview is between a computer used for business or personal use and help you fill out your P11D form if required.
Is a computer a tax deduction?
Computer equipment, such as a PC, server or printer (and any other office-related equipment and hardware) is treated differently from software in your company accounts.
A business PC is considered to be a fixed asset and falls under capital allowances, whereas consumables such as standard software, licence fees and memory cards are treated as standard allowable business expenses.
Since technology is constantly evolving, computing equipment can depreciate in value over time. Here at CloudCo we are well versed at gathering all the costs associated with these fixed assets in order to complete your tax return.
Are computers part of the annual investment allowance?
The annual investment allowance is an allowance that relates to a full 12 month period, and is reduced proportionately for short accounting periods.
The allowance is only available once for a group of companies. Where companies are under common control of one or more individuals, multiple allowances will be available, unless the companies also occupy the same premises or carry out the same type of operations.
The allowance is not available to partnerships with limited company members.
HMRC lists the following protocols as to what expenses can be used under the AIA:
- Office equipment including computer hardware and certain types of software, and office furniture.
- Parts of a building referred to as integral features.
- Certain fixtures, such as air conditioning, fitted kitchens, or bathroom fittings.
- Lorries or vans used for moving purposes.
- Machines used for business purposes.
- Agricultural machinery including tractors.
- Machines used for providing entertainment, such as arcade game machines.
So, as you can see, a PC can certainly be used as an allowance according to the AIA.
VAT details to be aware of
There is also the VAT element to be aware of concerning your limited company. If your company is VAT registered, the PC purchase is treated as a single transaction in addition to a business need.
This means that under the flat rate VAT scheme, you can reclaim the VAT on your purchased PC as long as the full cost is at least the value of £2,000. For standard rates schemes, there is no minimum amount – in fact you can claim even if the VAT cost on the asset is as little as just £1!
This value does not have to align only to the purchased PC, it can come from any additional equipment cost needed for your company.
If your company has a business owner, managers, applicable staff, and is under the normal VAT scheme, it can claim back the VAT on all business related costs in terms of equipment.
Since VAT can be quite confusing once it becomes apparent that various tax savings can be obtained out of the many complexities of the scheme, it is essential to hire an accountant to ensure you receive all of the available allowances that you qualify for within your company.
Why Choose CloudCo for Tax Purposes?
CloudCo Accountancy Group is a Chartered Management Accountancy Firm offering premium accounting services to a range of businesses and individuals.
When you choose to partner with us, our experts will continuously assess your business accounts and look for areas where you can potentially save tax, money and time. We will also check for any discrepancies in your business records. which when addressed in a timely manner, will result in tax savings as the year-end approaches.
This includes using a balance sheet to account for your various purchases and receipts to claim full allowance on items such as business computers and other related costs related to running a PC.
Contact us today for a free accounting consultation with one of our chartered accountants to find out how we can help you reconcile a claim for your many limited company expenditures.