When running your own limited company you’ll undoubtably purchase assets – be it computer hardware, a desk or chair for your home office. It’s important to keep track of your company’s assets to ensure they’re working as tax-efficiently as possible.
If you need to transfer personal assets into your company, find out how in our guide on transferring personal assets.
What is an asset?
In general terms an asset is an item that is purchased for prolonged use by the company – for example a new laptop, printer or office chair would typically classed as an asset, whereas blank DVDs or printer ink wouldn’t. It’s important that you classify your expenses and assets correctly – there are two simple questions to ask yourself when making a purchase:
- Will the item have a useful life of more than one year?
- And, does the item cost more than £200?
If so it’s likely that the purchase is an asset, not an expense. Conversely, if not, it is likely the purchase is an expense.
If you use the Flat Rate Scheme for VAT you don’t normally reclaim VAT on your purchases. There is an exception however when you purchase certain assets with a VAT inclusive price of over £2,000.
Assets are created either via ia Bookkeeping (for items purchased directly using company money,) or Time & Expenses (for items that you’ve purchased using your own money.) Just select ‘purchase an asset’ when entering the transaction.
When you create an asset it will be automatically added to your company’s fixed asset register – a list of all the assets owned by your company and their current value. You can access your asset register via the Taxes & accounts page.
The value of your asset is automatically reduced over time – inniAccounts will reduce the value of your asset by 25% each year, so after four years the accounting value of the asset will be zero.
When calculating corporation tax the value of your assets is taken into account and HMRC’s capital allowance rules are applied. The majority of contractors and freelancers can currently enjoy a 100% first year allowance on asset purchases – meaning that the entire value of your asset can be deducted from your company’s profit for corporation tax purposes (therefore reducing the amount of tax due).
Selling an asset
There may be times when you choose to sell an asset. This event needs to be recorded in your bookkeeping using ‘enter new transaction’, then by selecting ‘sell an asset’. You will be prompted to enter the date the asset was sold and the amount the asset was sold for. inniAccounts will suggest an amount based on the assets current value that you can edit to be the actual amount the asset was sold for.