Contractors' Questions: How to claim for kit bought before my 'Ltd' began?

Contractor's Question: I started a limited company earlier this year, prior to which I was working through an umbrella company. I purchased equipment, such as a laptop and disk drive, before starting my business, but these are now used to generate income for my limited company.

Can I include the purchase costs of these items as expenses on equipment under my limited company or do I need to 'sell' them to the business so it owns them as assets?

Expert's Answer: If you transfer the assets to the limited company then you can be paid for the items, although this would be at market value rather than at the purchase price. If items are expected to have a useful economic life of more than one year, they should be capitalised by the company.

For tax purposes, capital items usually attract tax relief in the form of capital allowances at a percentage of their tax value over a period of time. However for tax purposes, an Annual Investment Allowance of £100,000 for a standalone company on capital expenditure after 1 April 2010 (£50,000 before this date) means that a 100% tax deduction is likely to be given in the circumstance that you have outlined. This means that in practice, for a small company, there is little difference in tax treatment between revenue and capital expenditure on plant. There are some anti-avoidance rules though, so it's best to take professional advice to ensure these do not prevent or restrict the tax deduction.

In addition, there is a relief for pre-trading expenditure, which is available where the company incurred revenue expenses after its incorporation date but before starting to trade. It treats the pre-trading expenditure as having been incurred on the first day of trading to ensure that you obtain tax relief.

The expert was Paul Spindler, partner in the technology practice at chartered accountants Kingston Smith.
 

Wednesday 16th Jun 2010