It’s so important to us at Clear Books to collaborate with our customers. Without you pointing us in all sorts of directions, Clear Books wouldn’t have all the great functionality we offer today!
Clear Books is popular with you non accountants due to its clear layout and easy to use tools.
We do understand that accounting hints and tips are still a necessity for those of you who didn’t go to accounting school! The kind of ideas you might not otherwise come across, without the help of an accountant.
Kaziu Gill is an accountant from LimeGreen Accountancy and is a member of the Clear Books Partners Scheme. Kaziu offers great advice when it comes to accountancy, so we thought we’d share his thoughts with you…
Capital Purchase or Administrative Expense?
Hopefully we can shine some light on a frequently asked question by some of our clients who operate as freelancers;
Purchases such as computers are treated as assets and then marked down in value by a percentage each tax year. But where are the boundaries between large items such as computers, and smaller items such as printers, especially software? Software has little or no resell value, so should that be treated as an administrative expense?
There is a distinction between how you treat assets for the purposes of producing accounts and the treatment for tax purposes. If your accountant produces accounts for your business it is likely that assets such as computers will be depreciated, typically at a rate of 25 or 33.3 per cent per annum. In the accounts, normally any item that costs less than £100 is treated as an expense. Additionally, if something such as software is likely to have a lifespan of less than one year then the whole cost would be ‘written off’ in the year that it was purchased and it would therefore be treated as an expense.
Where it can get confusing is with the calculation of one’s tax liability; the whole cost of assets purchased in the year (subject to a maximum of £100,000 from 1st April 2010) can be deducted from the business profits in the year that the asset was purchased. This is called the Annual Investment Allowance and has been available for small businesses for the last few years.
Given that you can get tax relief on the whole cost of assets purchased, the treatment in the accounts is really academic – just don’t forget to claim the whole cost in your tax return!
Also regarding VAT treatment, if you are VAT registered there is no problem in reclaiming VAT on the purchase of a computer. What’s more, if you don’t intend on buying any assets in the near future you may find it advantageous to look at the Flat Rate Scheme for accounting for VAT. You’ll be pleased to know that Clear Books supports the Flat Rate scheme which makes life very easy when switching over!
As always, we’re happy to have a chat and offer some initial free advice – Kaziu Gill (020 8742 2642) firstname.lastname@example.org