Sole Trader Expenses - Computer Purchase?

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ButtermilkJa

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I purchased a computer from the UK for my business. The laptop cost €1450.00. I paid for it with a busness development loan I got from my bank.

How would you account for a purchase like this in year-end accounts? I've heard you have to write it off over a number of years. Is this the case? If so, how is it done?

Thanks!
 
Cheers Rascal!

I'm not sure what capitalised means but I don't think I'm prepared to write it off over 7 years. It's only a laptop that will be useless in less than 3 years probably.
 
Can I? Is this a kind of, 'Use your judgement' sort of thing. Are there no set rules? In other words, I can write off a laptop over a year or two, but if I spend €50,000 on something I would spread it over longer. You spread it over the 'life' of the equipment so to speak. If so, what do I do now?

If I'm going to write it off over 2 years say, do I divide the ex-vat cost (€1450) by 2 and then include the result as an ex-vat expense for the year in my Income Tax calculations? Similar to any other ex-vat expense? Or is there a different way to treat equipment?

Cheers!
 
no, you can write it off in the 1st year as an overhead, rather than a fixed asset. a laptop will depreciate massively while something like a printing machine doesnt. if you decide to treat it as a fixed asset you can capitalise it, but for something like a laptop and of relatively low value you are better off treating it as an overhead, a lot of it comes down to your turnover, tax bill etc, as with all these things an accountant would advice you of the best course of action for your business
 
For what it's worth

We were advised to depreciate them over three years. 1/3 each year. We have 12 laptops so our situation is not exactly like yours but the above is the norm I believe

Janey
 
Buttermilk

The period you may claim capiatal allowances are dictated by revenue rules.

You may depreciate your assets in your own accounts any way you choose.

HOWEVER...depreciation is not an allowable expense.

Instead, capital allowances are claimed on your tax return.

There are rules governing claiming capital allowances and how they are claimed. Be careful. as revenue may reverse anything you may do incorrectly.

Hope this helps...

Ciaran
Accountant in Practice
 
Yes thanks! All the above helps. I'll most likely be getting an accountant anyway so I'm sure he/she will be able to sort me out.

I'm just trying to do as much as possible myself as it's only a part-time business so the turnover is not huge and I don't want to have to pay a few hundred on accounts if I can save a bit by doing a lot myself.
 
I thought Capital Allowances were claimed at 12.5% per annum, therefore over 8 years rather than 7?
 
ButtermilkJa said:
Yes thanks! All the above helps. I'll most likely be getting an accountant anyway so I'm sure he/she will be able to sort me out.

I'm just trying to do as much as possible myself as it's only a part-time business so the turnover is not huge and I don't want to have to pay a few hundred on accounts if I can save a bit by doing a lot myself.
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As has been said, the way to claim it is through Capital Allowances, which are normally claimed over 8 years.

There may be a box to claim accelerated allowances in the first year - maybe 40% (I don't know the detail) which will resolve the most of it for you.

If after 2 years, the laptop's kaput, you claim that you've disposed of it for Zero, and then claim the Written down Allowance for the remaining amount in 1 lump.

T'would be on your conscience to say that it'd died in year 1, when it may actually be working quietly away somewhere else
 
liteweight said:
So is it possible to claim it as an overhead or MUST you write it off over 8 years at 12.5%?
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You can't claim it as an overhead under any circumstances. You must capitalise it in your accounts ie treat is as a fixed asset on your balance sheet and depreciate it. You can chose any reasonable depreciation % you like for your accounts but in order to arrive at your taxable profit for the year depreciation will be added back and capital allowances will be claimed.
 
Thanks Kiddo.....seems crazy though, Buttermilk is obviously a sole trader, running a part time business and he has to operate like a multi national!!
 
Well look on the bright side - you can be getting tax relief from the purchase long after the laptop has ceased to function!
 
Kiddo said:
You can't claim it as an overhead under any circumstances. You must capitalise it in your accounts ie treat is as a fixed asset on your balance sheet and depreciate it. You can chose any reasonable depreciation % you like for your accounts but in order to arrive at your taxable profit for the year depreciation will be added back and capital allowances will be claimed.
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I've worked in the IT and office equipment business for many years and from experience of dealing with the revenue they are quite happy for sole traders and small companies to write off minor office & IT equipment off in the first year. They appreciate that the machines have a limited life and that a small trader isnt going to claim (nor do they really want them to) for it over 5,6,7,8 years. You dont see many STs/SMEs keeping an asset register for their fax machine, 50 euro inkjet printer etc. Its when you get into the the 10,000's that the RC become interested in capital allowances
 
contemporary said:
I've worked in the IT and office equipment business for many years and from experience of dealing with the revenue they are quite happy for sole traders and small companies to write off minor office & IT equipment off in the first year. They appreciate that the machines have a limited life and that a small trader isnt going to claim (nor do they really want them to) for it over 5,6,7,8 years. You dont see many STs/SMEs keeping an asset register for their fax machine, 50 euro inkjet printer etc. Its when you get into the the 10,000's that the RC become interested in capital allowances
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In how many Revenue Audits have you seen this policy implemented by the Inspector?

Common sense would indicate that the cut-off for this purpose should be a lot higher than €50 euro, but it would be crazy to suggest that one could get away with a cutoff as high as €10,000.
 
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