# Sole Trader - is a laptop a capital expense?



## machalla (10 Sep 2007)

I am currently working as a sole trader in the IT industry (although I may have to switch being a limited company soon).  I am looking at picking up a few essentials (laptop, printer other sundry IT items of use in my work). 

I had thought that items like these would count as expenses but it has been mentioned in passing that actually these items would have to be depreciated over the lifetime of their use (a number of years).

Does anyone know if this is the case?  I had thought these would be an expense to be applied against my gross income for the year after which I work out the amount of tax due to be paid on that income.

Are there any definitive lists of items that can be expensed and how to treat them (straight expense or item that can only be depreciated) freely available?

Thanks for any help on this.


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## contemporary (10 Sep 2007)

my accountant told me it was a expense and we wrote it off accordingly, however in debates here (cant find the thread at the mo) some say it is capital and treat it as such


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## Nige (10 Sep 2007)

There's no definitive list, but anything that is expected to last more than a year is an asset.

A laptop is definitely an asset and so can only be written off over 8 years for tax purposes (though if you sell or scrap it before the 8 years are up, you will get the balance of allowances then). It's the same for printers.


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## ubiquitous (10 Sep 2007)

contemporary said:


> my accountant told me it was a expense and we wrote it off accordingly



It would be interesting to know the context of this advice - for example a direct replacement (not an upgrade) of a lost/stolen laptop would in my view count as an expense in most cases - the facts of each individual case can determine whether or not this is a possibility.


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## ButtermilkJa (10 Sep 2007)

I have asked this question before here on AAM and the general concensous was that it was a capital allowance to be written off over 8 years, and this is exactly what my accountant has been doing also.

However, I am in operation 2.5 years and am currently on my 3rd laptop (appx €1,500 ea.) and about to upgrade again. I also spent €2,000 on software 10 months ago which now needs to be replaced also. Having said that, I also bought an external monitor (€380) for my laptop and an 'all-in-one' printer (€200) for the home office which I will most likely use for 3 or 4 years.

So, it's hard to tell what is best to do. To me it just seems like it would be a whole lot easier to write these things off as an expense. But, what I want, and what Revenue want rarely cross paths


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## capall (10 Sep 2007)

If you replace your laptop every 2 years then you write it off over 2 years

If you buy a laptop today and you pour coffee over it tomorrow then you expense it in this years accounts


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## z109 (10 Sep 2007)

capall said:


> If you replace your laptop every 2 years then you write it off over 2 years
> 
> If you buy a laptop today and you pour coffee over it tomorrow then you expense it in this years accounts


I'm not sure this is correct. If you have to replace the laptop after two years, the following situation applies:
1st year - no capital depreciation, so nothing in accounts
2nd year - you would be entitled to depreciation of 12.5% of the net cost (as you would also be for the next 7 years). In this case, as you are writing off the asset (i.e. disposing of it), you can write off the full value (less anything you earned in writing it off) in the second year. This appears to be known as a balancing charge (can't they just call it a write-off?). I don't know if the revenue will ever look for evidence of the write-off.

I can't see anywhere that says you can claim for a capital expense as a normal expense just because you break it on the revenue website.


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## Nige (10 Sep 2007)

yoganmahew said:


> 1st year - no capital depreciation, so nothing in accounts
> 2nd year - you would be entitled to depreciation of 12.5% of the net cost (as you would also be for the next 7 years). In this case, as you are writing off the asset (i.e. disposing of it), you can write off the full value (less anything you earned in writing it off) in the second year. This appears to be known as a balancing charge (can't they just call it a write-off?). I don't know if the revenue will ever look for evidence of the write-off.


 
You would get a 12.5% allowance in year one (even if you haven't depreciated it in the accounts.

If it breaks in year two, you then get the remaining allowances (87.5%).


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## extopia (10 Sep 2007)

http://www.askaboutmoney.com/showthread.php?t=20852


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## z109 (10 Sep 2007)

extopia said:


> http://www.askaboutmoney.com/showthread.php?t=20852



Hi Extopia, so in summary of the previous thread:
A laptop is a capital asset.
A capital allowance of 12.5% of it's net value can be claimed for 8 years.
If it is disposed of within those 8 years, the remaining capital allowances can be claimed in that year as a balancing payment.

Upgrades to existing software and hardware to maintain current function can be treated as expenses. New hardware and software should be treated as assets.

Which leaves me with two questions:
1. Does the disposal include scrappage as well as sale?
2. Can I sell it to myself at the current market value?

(Sorry for the hijack - I am in a similar situation).


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## Nige (11 Sep 2007)

If you are a sole trader, you can't sell anything to yourself (but you can cease to use it for business purposes).

Sale includes scrapage for the purposes of a balancing allowance.


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## z109 (11 Sep 2007)

Nige said:


> If you are a sole trader, you can't sell anything to yourself (but you can cease to use it for business purposes).
> 
> Sale includes scrapage for the purposes of a balancing allowance.


So if you scrap it, because it's not up to the job of doing business with it anymore, but give it to the children to play on that's okay?


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## extopia (11 Sep 2007)

Here's what it says in Revenue's [broken link removed]:

(pages 18-19)
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*Balancing Allowance and Balancing Charge* 

If the item of Machinery/Plant or Motor Vehicle ceases to belong to the claimant or used for the purposes of the trade, you cannot claim a Wear and Tear allowance on that item for that year.

For example, if you sold the asset for a sum less than its Written Down Value at the beginning of the year, you may claim a *balancing allowance* equal to the difference between the two amounts. 

If, however, you sold the asset for a sum greater than the Written Down Value, a balancing charge arises. The excess is treated as an additional amount of income. However, the balancing charge cannot exceed the amount of the capital allowance actually given, on the item sold, in previous years.

An adjustment may be necessary in respect of motor cars where the maximum cost limits were applied. Refer to page 20 of this Guide, which deals with this situation. 

*Examples: *

*Balancing Allowance* 

Machinery is sold during the year for £1,500. Its Written Down Value at the start of that year was £1,800. A Wear and Tear allowance cannot be claimed for that year. Instead, a Balancing Allowance of £300 can be 
claimed.

*Balancing Charge* 

Machinery is sold during the year for £3,000. Its Written Down Value at the start of the year was £2,000. A Wear and Tear allowance cannot be claimed for that year. Instead a Balancing Charge of £1,000 arises and 
tax must be accounted for on this amount as if it were a profit. 

*With effect from 1 January 2002, a Balancing Charge will not arise where the sale, insurance, salvage or compensation proceeds in respect of machinery or plant is less than £2,000. However, this will not apply in respect of the sale or other disposal of the machinery or plant to a connected person.* 

-----------------------------------------------------------------

This last part is interesting. It suggests that no balancing charge would accrue on the sale of a used laptop providing the proceeds are less than 2k - as long as you're not selling it to yourself or a "connected person", which I'd assume means a family member or business partner.

Any thoughts?


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## extopia (11 Sep 2007)

ubiquitous said:


> a direct replacement (not an upgrade) of a lost/stolen laptop would in my view count as an expense in most cases - the facts of each individual case can determine whether or not this is a possibility.



That's interesting. Can you point to any specific tax law or Revenue guideline that deals with this scenario, or is it a case of the Tax Preparer having a certain amount of leeway in interpreting the rules?

It seems to me that this scenario would be very open to abuse. If you could claim a balancing allowance for the written down value of a one-year old stolen laptop, then treat its replacement as a business expense, effectively you could write off the entire purchase against your profits in 12 months, or even less if the timing was right.


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## dtlyn (23 Nov 2011)

Slight angular to this topic. 

- I am a recently registered sole trader. 
- I use a laptop bought before I registered as a sole trader, but use it on a daily basis exclusively for work. 
- This laptop is no longer fit for purpose and no-longer upgradable/repairable to any standard due to accidental damage and wear and tear. 
- Can I scrap this laptop and replace it, writing my replacement off as an expense, or do I need to class it as a new Capital Investment?


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## DB74 (23 Nov 2011)

You can't write off the new laptop as an expense - you have to treat it as an asset and claim Wear-and-Tear at a rate of 12.5% over 8 years

The issue relating to claiming a replacement as an expense really only relates to improvements to a building and not fixtures & fittings

I mean, if you had a van or a piece of equipment that cost thousands and it broke down and you had to buy a new one, does anyone really think that Revenue would allow you to write off the cost of the new asset as an expense in year one!


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## contemporary (23 Nov 2011)

ha, as if a laptop that will last 8 years!


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## mandelbrot (23 Nov 2011)

contemporary said:


> ha, as if a laptop that will last 8 years!


 
It's irrelevant whether or not it will last 8 years. If (or when) it lasts less, you write the remainder of its cost off in that year.

It has to be like that because otherwise people will take the proverbial...


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## DB74 (23 Nov 2011)

contemporary said:


> ha, as if a laptop that will last 8 years!



That's not the point

If it only lasts 2 years and you scrap it then you will get tax relief on the unclaimed capital allowances


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## M K Brazil (23 Nov 2011)

This is an interesting debate - for what its worth I've seen people who work in IT who go through lap-tops every few months and therefore treat them as 'consumables' and not as capital assets. The capital allowances route is a general rule but like all general rules there are exceptions. Damaging a lap-top like spilling coffee etc doesn't stop it being an asset - no more than crashing a car etc. However if you know buying it that it will probably be used up and thrown out within 12 months then.....


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## ClubMan (23 Nov 2011)

M K Brazil said:


> This is an interesting debate - for what its worth I've seen people who work in IT who go through lap-tops every few months


Must say that in about 25 years working as a software engineer I've never come across that sort of approach.


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## Gekko (23 Nov 2011)

I would advise such a sole trader to claim capital allowances in relation to their first purchase of a laptop.

I would advise him/her to claim a balancing allowance equal to any unclaimed capital allowances in the likely event that the laptop gives up the ghost during the eight years.

I would advise him/her to expense the replacement laptop if it's broadly of similar specs and I would advise him/her to claim capital allowances in the event that it's an obvious upgrade of what they had before (taking into account the rapid development of laptops from one generation of equipment to the next).


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## dtlyn (23 Nov 2011)

Thanks guys, good info. I'll go down the capital expenses route, to be sure.


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## DB74 (23 Nov 2011)

Gekko said:


> I would advise such a sole trader to claim capital allowances in relation to their first purchase of a laptop.
> 
> I would advise him/her to claim a balancing allowance equal to any unclaimed capital allowances in the likely event that the laptop gives up the ghost during the eight years.
> 
> I would advise him/her to expense the replacement laptop if it's broadly of similar specs and I would advise him/her to claim capital allowances in the event that it's an obvious upgrade of what they had before (taking into account the rapid development of laptops from one generation of equipment to the next).



So if someone buys a top-of-the-range laptop and it sits down after say 6-9 months and they buy an almost carbon-copy replacement you would write-off the cost of both laptops in the same year, one via balancing allowance and one via expenses?

I can't see any Revenue inspector accepting that


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## WindUp (23 Nov 2011)

Gekko said:


> I would advise such a sole trader to claim capital allowances in relation to their first purchase of a laptop.
> 
> I would advise him/her to claim a balancing allowance equal to any unclaimed capital allowances in the likely event that the laptop gives up the ghost during the eight years.
> 
> I would advise him/her to expense the replacement laptop if it's broadly of similar specs and I would advise him/her to claim capital allowances in the event that it's an obvious upgrade of what they had before (taking into account the rapid development of laptops from one generation of equipment to the next).



Sorry ; but I do not agree with this approach

my 2 cents

Laptop 1- claim cap all's based on its value when you started using it --12.5 % / year

when it dies -  claim the balance as a balancing allowance

Laptop 3 -- start again ---cap all's 12.5 % per year--

PS---if this is a very cheap laptop - <500 -just expense both of them


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## contemporary (24 Nov 2011)

This is one area thats baldly need in reform, the useful life of any PC or laptop is no more than 3 years, anything after that is a bonus.


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## mandelbrot (24 Nov 2011)

contemporary said:


> This is one area thats baldly need in reform, the useful life of any PC or laptop is no more than 3 years, anything after that is a bonus.


 
WHOOSH!

That was the sound of the point of Capital Allowances, flying over your head...! 

You're not looking at the bigger picture here, by just focusing on a laptop. The rate of allowance is the same for all plant & machinery (with a very few exceptions), because it would be unfeasible for Revenue to determine, for every type of asset for every type of business, what the useful life of the asset is. Depending on the type of business it's put to use in, the same type of asset could last 3 years or 13 years. Some assets might have useful lives far longer than 8 years, but they are also written off over 8 years. The whole area is an exercise in swings and roundabouts.


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## ClubMan (24 Nov 2011)

contemporary said:


> This is one area thats baldly need in reform, the useful life of any PC or laptop is no more than 3 years, anything after that is a bonus.


I disagree with this generalisation - again based on decades' worth of experience working as a professional software engineer. Many of the _PCs _that I use daily in work are c. 6 years old and there is no pressing need to change them. Even older ones would suffice for general office/admin tasks.


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## contemporary (24 Nov 2011)

mandelbrot said:


> WHOOSH!
> 
> That was the sound of the point of Capital Allowances, flying over your head...!
> 
> You're not looking at the bigger picture here, by just focusing on a laptop. The rate of allowance is the same for all plant & machinery (with a very few exceptions), because it would be unfeasible for Revenue to determine, for every type of asset for every type of business, what the useful life of the asset is. Depending on the type of business it's put to use in, the same type of asset could last 3 years or 13 years. Some assets might have useful lives far longer than 8 years, but they are also written off over 8 years. The whole area is an exercise in swings and roundabouts.



I think it should be value based, i.e. if it costs less than say 2k its an expense.I've heard of people being told to write off a €99 euro inkjet printer over 8 year, claptrap tbh



			
				clubman said:
			
		

> I disagree with this generalisation - again based on decades' worth of  experience working as a professional software engineer. Many of the _PCs _that  I use daily in work are c. 6 years old and there is no pressing need to  change them. Even older ones would suffice for general office/admin  tasks



thats your "problem" you probably come from a background where code had to be complied in KBs, now developers are trained that big oul exes are fine because drives are up to TB's

However I'd hate to try and run a modern CAD app on your 6 year old machine 

Years ago PC's were big ticket items, so could be treated as capital expenditure but with the cost of new machines less than €500 these days they are more like consumable items than capital items


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## ClubMan (24 Nov 2011)

_CAD _is a very specialised application and the vast majority of users will not require the horsepower needed to run that sort of thing.


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## sean.c (13 Dec 2011)

My advice for that self same question was that any item in excess of €1000 cannot be an expense.  
So you could buy an Apple Macbook (€999) and write it off as an expense, but an iMac (€1299) would have to be a capital item and written off over 3 years.
Bear in mind that the VAT for the item can be claimed back immediately.


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