If you buy equipment for your business, does it have to be shown as a fixed asset and depreciated, or can it be put straight through as an expense? If put through as an expense would it affect how you pay tax on it?
Depends on what you buy and the cost, eg if you buy a brand new laptop for 400 pounds then yes you will have to include in the fixed asset and depreciate accordingly. on the other hand if you buy a new screen for that laptop for 100 pounds then that becomes a cost and not a fixed asset as its a maintenance / repair cost. By entering these items in the fixed asset register you will be able to claim an allowance for them when it comes to you paying your taxes
You also need to consider the new equipment in the context of the overall business and its turnover. If you purchase a new (cheap) phone for £9.99 there is no point depreciating it as you would end up charging the P/L account a few pounds per year, which is silly as it does not really affect the overall tax position of the business. I would put that down as general office expenses and write it off as any other office expense even if a phone is equipment.
Fabs
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I worked somewhere that had a capital expense limit sort of, anything less than £350 was not to be capitalised and to be put straight through as an expense regardless. I wondered if the almighty HMRC had any specific ruling, or do they leave it to yourselves to decide. So really it comes down to whether or not you gain from capitalising or not. I suppose the effects in the long-term are the same.
It comes down to a number of factors whether you capitalise something or not and you might not capitalise it and somebody else might capitalise it but both of you could argue that you are right.
Factors to consider are
What is being bought
What the cost is
Would the cost if capitalised or not have a material effect on the results of the business
Is the item bought something new or a replacement of something existing.
Some people set levels below which they dont capitalise and again this depends mainly on the size of the business. After all if you capitalise something for £100 you would need to put it in the fixed asset register and work out the depreciation each year. Common limits below which not to capitalise are £500 or £1k. But there isnt anything set in stone by HMRC.
If you bought 1 item of plant and machinery for £50k in the year then whether you capitalised or it or not would have the same tax consequences. If you capitalised you would be able to claim 100% AIA up to 31 March 2012 (when the limit falls from £100k to £25k). So the advice to clients is if they are going to spend some serious plant and machinery expenditure soon and it is likely to be between £25k and £100k then if cash flow permits they should do before 31 March to get full 100% AIA rather than after.
