Equipment purchased for business purposes

[Badger99]

Hi All,

I have just incorporated and am starting a contract in a couple of weeks.
Can anyone advise on how to account for equipping an office at home? I will need the capability to work from home on occasions and have a small study I can use as an office. I was looking at buying a PC/Printer/Monitor second had from a ex-contractor friend. How do you account for purchases such as these if they are not new goods, and how do you also account for depreciation?

Thanks

[BolshieBastard]

Hi All,

I have just incorporated and am starting a contract in a couple of weeks.
Can anyone advise on how to account for equipping an office at home? I will need the capability to work from home on occasions and have a small study I can use as an office. I was looking at buying a PC/Printer/Monitor second had from a ex-contractor friend. How do you account for purchases such as these if they are not new goods, and how do you also account for depreciation?

Thanks

So long as they are used solely for the business and not for personal use, you just claim the amount you paid for them to your co. Obviously you cant inflate the price you paid so your co pays you more money for them.

It doesnt really matter that the goods are second hand. The price you pay is the price your co re imburses you. Unless your ex contractor friend is still VAT registered (unlikely) you wont be able to claim any VAT element for your co, assuming you are also VAT registered and not on the FRS.

Havent a clue about depreciation.

[zedAccounts]

Depreciation is generally 20% per year (straight line or reducing balance). Depreciation is not an allowable expense but HMRC provides relief through Capital Allowance / AIA schemes.

ZED.

[Clare@InTouch]

As Zed states depreciation isn't allowable against tax, and the rate you use just needs to be realistic given the expected useful life of the asset. 25% straight line for example will assume a useful life of 4 years (as after then the asset will be worth zero in your accounts). Computer equipment could be as much as 33.3% straight line as anything techi these days tends to become obsolete (and therefore nigh on worthless) rather quickly.

If an asset is under £1,000 then I'd look at writing it off against the P&L in the first year rather than capitalising it.

[Badger99]

Thanks All

[Taxless]

You or the company?

You say "I am looking at buying ....", but I assume the new company will be making the purchase?

On that basis, the company will probably be able to claim 100% of the cost in year 1 (if it needs it all) as an Annual Investment Allowance, see : Annual investment allowance | Business Link

If you have not already considered it, you could also charge the company a rent for the use of part of your home for part of the time, which would enable you to charge some of your personal household expenses against the rent.

A simple rental agreement should be drawn up based on commercial sq m rental rates (see local estate agents websites) and you should not allow the company exclusive use of a room in the home to avoid any Capital Gains tax complications when you sell the property.

[northernladuk]

You say "I am looking at buying ....", but I assume the new company will be making the purchase?

On that basis, the company will probably be able to claim 100% of the cost in year 1 (if it needs it all) as an Annual Investment Allowance, see : Annual investment allowance | Business Link

If you have not already considered it, you could also charge the company a rent for the use of part of your home for part of the time, which would enable you to charge some of your personal household expenses against the rent.

A simple rental agreement should be drawn up based on commercial sq m rental rates (see local estate agents websites) and you should not allow the company exclusive use of a room in the home to avoid any Capital Gains tax complications when you sell the property.

Assuming of course that you are actually using it. Being based on client site 9-5 would not constitute using your office enough to do this comfortably. Common sense would need to be applied here. Just because you can claim this doesn't mean you can abuse it.

From what I have seen on this forum over the years no accountant so far has condoned this approach for IT contractors based at clients site.

[Taxless]

Agreed

I couldn't agree more.

Any expense claimed by the company must be defended as "wholly & exclusively" for business purposes and so the amount claimed must be defendable.

In this case the individual has stated that he will have to work from home on occassions and so a "reasonable" charge could be made.

[northernladuk]

I couldn't agree more.

Any expense claimed by the company must be defended as "wholly & exclusively" for business purposes and so the amount claimed must be defendable.

In this case the individual has stated that he will have to work from home on occassions and so a "reasonable" charge could be made.

But I would argue that 99% of contractors do not have an office at home that is used "wholly & exclusively" for the business. It will be their home desk with their home computer that other people in family use for doing personal things.

Sorry, just being a pedant here. New guys that come on here are going to be all over this like a rash without realising the in's and out's

[MarillionFan]

But I would argue that 99% of contractors do not have an office at home that is used "wholly & exclusively" for the business. It will be their home desk with their home computer that other people in family use for doing personal things.

Sorry, just being a pedant here. New guys that come on here are going to be all over this like a rash without realising the in's and out's

99%. I think your guessing there. Every contractor I know has a room set aside as an office. I paid to have mine turned into an office, so the company paid for that. Computer equipment, printers, paper, pens, stamps are all expensed. If you think like an employee then you'll always be an employee.