Depreciation of IT hardware reducing balance?

[Jcochr]

I can't get my accountant to do straight line depreciation on IT hardware as I believe is normal. The problem comes when you wish to close down the company and they have done reducing balance. They try to say that they only do reducing balance. Can the director insist on a particular depreciation scheme? I seem to have the most unreasonable accountant and it feels like they are trying to make the accounts more difficult to close down.

[RonBW]

Your accountant works for you. If they aren't doing the job, find one who will.

[Darren at Fox-Bartfield]

What's their reasoning behind the depreciation policy? This is the decision of the directors and the accountants are there to advise as RonBW says. Do you have a significant level of kit?

[Patrick@Intouch]

The decision on depreciation is yours. As the director of the company it is your responsibility to decide how quickly those assets are likely to lose value and the depreciation policy should reflect that.

If you are looking to purchase assets from your company as part of the closure process then you would need to consider an approximate market value of those assets which may not be equal or even similar to the value declared in the accounts.

It may also be necessary to consider balancing charges when disposing of assets and any balancing charges would be calculated by reference to the WDV of the assets for capital gains purposes versus the value realised on disposal.

[Maslins]

Two thoughts:

1) whilst yes, it's strictly the directors who should basically choose everything, the accountant can make recommendations. It may be that this recommendation is to make their life easier (ie that's just how they do it)...but then it can be a bit of a game of chicken. Maybe if you push them hard enough they'll do it straight line, maybe they won't. If they don't, will you suck it up, or will you move firm.

From our perspective we're the other way. Basically FreeAgent does things straight line, so if hypothetically a client really wanted it done reducing balance, every year we'd need to manually remove the straight line depreciation, do our own calculations, and manually enter them. In practice that's more effort than it's worth, and if a client was insistent, then they'd end up looking for another accountancy firm and/or bookkeeping packages.

Yes, the customer's always right, but also bear in mind if a customer is doing what the supplier considers to be ridiculous and makes them not commercially viable to retain as a customer, the supplier may tell them where to go. Whether or not you're bothered about that risk is up to you. A case of picking your battles I guess.

2) Does it matter?! If you're looking to close, then the depreciation policy to date is basically irrelevant. If any fixed assets do realistically have a market value, that's what you should be paying the company for them (or of course sell to an independent third party via eBay/whatever) and there'll be a gain/loss on disposal, which will basically overwrite and depreciation. It may be that the assets realistically have a negligible value, in which case you'll just scrap them. From an accounting perspective, this means a loss on disposal of whatever the NBV was. So again, depreciation to that point becomes irrelevant, a higher/lower depreciation policy just means you have a lower/higher loss on disposal.

[Jcochr]

What's their reasoning behind the depreciation policy? This is the decision of the directors and the accountants are there to advise as RonBW says. Do you have a significant level of kit?

I think their reasoning is just that they always apply this depreciation but it does not make sense when they have a separate section for IT assets. I only have a couple of computers but with reducing balance they stay of value for a great deal of time. I was thinking that I will keep the company open until the asset has depreciated but that it would be better if the depreciation followed a straight line approach. If I write-off the asset this year then I have to take a reduction in profits and then I have to pay back dividends. If I wait till next year and the asset depreciates then I can avoid this. IMO

[Jcochr]

I think FreeAgent is more sensible when most modern assets depreciate very quickly and become worthless. Reducing balance leaves you with always having to dispose of assets. I can't imagine that is helpful from an admin point of view. I am not trading and have stopped the contract. This is the last year end so I don't have much bargaining power. I hoped that they could do it manually and apply a correction. It is now over 3 years old so would have depreciated to almost zero under most straight line rates.

Two thoughts:

1) whilst yes, it's strictly the directors who should basically choose everything, the accountant can make recommendations. It may be that this recommendation is to make their life easier (ie that's just how they do it)...but then it can be a bit of a game of chicken. Maybe if you push them hard enough they'll do it straight line, maybe they won't. If they don't, will you suck it up, or will you move firm.

From our perspective we're the other way. Basically FreeAgent does things straight line, so if hypothetically a client really wanted it done reducing balance, every year we'd need to manually remove the straight line depreciation, do our own calculations, and manually enter them. In practice that's more effort than it's worth, and if a client was insistent, then they'd end up looking for another accountancy firm and/or bookkeeping packages.

Yes, the customer's always right, but also bear in mind if a customer is doing what the supplier considers to be ridiculous and makes them not commercially viable to retain as a customer, the supplier may tell them where to go. Whether or not you're bothered about that risk is up to you. A case of picking your battles I guess.

2) Does it matter?! If you're looking to close, then the depreciation policy to date is basically irrelevant. If any fixed assets do realistically have a market value, that's what you should be paying the company for them (or of course sell to an independent third party via eBay/whatever) and there'll be a gain/loss on disposal, which will basically overwrite and depreciation. It may be that the assets realistically have a negligible value, in which case you'll just scrap them. From an accounting perspective, this means a loss on disposal of whatever the NBV was. So again, depreciation to that point becomes irrelevant, a higher/lower depreciation policy just means you have a lower/higher loss on disposal.

[Jcochr]

If I close the company next year, and I can show the assets have completely depreciated and I have no profits or dividends for that year then I was hoping to avoid paying any balancing charges...

The decision on depreciation is yours. As the director of the company it is your responsibility to decide how quickly those assets are likely to lose value and the depreciation policy should reflect that.

If you are looking to purchase assets from your company as part of the closure process then you would need to consider an approximate market value of those assets which may not be equal or even similar to the value declared in the accounts.

It may also be necessary to consider balancing charges when disposing of assets and any balancing charges would be calculated by reference to the WDV of the assets for capital gains purposes versus the value realised on disposal.

[Jcochr]

I think that I may close next year or may start trading again. If I close in the future and the value of the assets has reduced properly then there are less balancing payments when the assets are disposed of. If they have depreciated to zero then perhaps this will be easier to do.

Two thoughts:

1) whilst yes, it's strictly the directors who should basically choose everything, the accountant can make recommendations. It may be that this recommendation is to make their life easier (ie that's just how they do it)...but then it can be a bit of a game of chicken. Maybe if you push them hard enough they'll do it straight line, maybe they won't. If they don't, will you suck it up, or will you move firm.

From our perspective we're the other way. Basically FreeAgent does things straight line, so if hypothetically a client really wanted it done reducing balance, every year we'd need to manually remove the straight line depreciation, do our own calculations, and manually enter them. In practice that's more effort than it's worth, and if a client was insistent, then they'd end up looking for another accountancy firm and/or bookkeeping packages.

Yes, the customer's always right, but also bear in mind if a customer is doing what the supplier considers to be ridiculous and makes them not commercially viable to retain as a customer, the supplier may tell them where to go. Whether or not you're bothered about that risk is up to you. A case of picking your battles I guess.

2) Does it matter?! If you're looking to close, then the depreciation policy to date is basically irrelevant. If any fixed assets do realistically have a market value, that's what you should be paying the company for them (or of course sell to an independent third party via eBay/whatever) and there'll be a gain/loss on disposal, which will basically overwrite and depreciation. It may be that the assets realistically have a negligible value, in which case you'll just scrap them. From an accounting perspective, this means a loss on disposal of whatever the NBV was. So again, depreciation to that point becomes irrelevant, a higher/lower depreciation policy just means you have a lower/higher loss on disposal.

[Darren at Fox-Bartfield]

If I close the company next year, and I can show the assets have completely depreciated and I have no profits or dividends for that year then I was hoping to avoid paying any balancing charges...

Any balancing charges are calculated on the tax WDV (Written down value) which is shown on the tax computations rather than the accounts. The value in the accounts is not the same as the tax WDV. In essence, the tax WDV will be £nil in any case as the assets are likely to have been fully claimed in the first year of purchase.