How to claim software and computer hardware expenses via your Limited Company

Are you considering upgrading your PC or software? Before you hit the ‘add to basket’ button, do you know how these sorts of expenses are treated for tax purposes? In this blog we take a look at technology costs and how they’re accounted for, and the rules surrounding the treatment of purchasing computer-related goods.

Business vs personal use

For many Limited Company contractors, their equipment costs are usually the biggest one they’ll incur. But before you purchase a new laptop or upgrade your software, it’s a good idea to understand HMRC’s rules.

If you’ll be purchasing such goods through your Limited Company, then it’s important to identify how you envisage your usage on a daily basis. For example, if you’ll expect your Limited Company to pay for it, then your usage must be limited to business usage only, and any personal use must be purely ‘incidental’.

If HMRC are able to prove that there has been significant personal usage, then duality of purpose has been identified, and you may find yourself being taxed on the value as a ‘benefit in kind’.

How do you account for computer-related purchases?

It’s important to understand that the purchase of software is viewed differently in your company’s accounts to the purchase of computer equipment (for example PCs, laptops, printers, etc).

Standard allowable business expenses relate to standard software, memory cards and license fee purchases. Actual pieces of equipment are treated as ‘fixed assets’ and are subject to capital allowance rules.

According to the prevailing capital allowance rules, larger value items will be of more value to your business over a longer period time than say those of standard expenses, as a proportion of a fixed assets value is then offset against the company’s profits for each year that it’s considered to have a value.

You’re able to offset up to £1,000,000 in allowable capital purchases against your company’s Corporation Tax bill every year, under the current Annual Investment Allowance (AIA) rules.

Purchasing equipment when you’re on the Flat Rate VAT scheme

If you’re contracting through your Limited Company and you’re on the Flat Rate VAT Scheme (FRS), be aware that there are rules which govern the tax treatment of computer equipment purchases. You may not be able to claim back the VAT on any computer equipment purchases if your business operates under the FRS. You can however, claim back the VAT element of any capital expenditure items worth £2,000 or more (including VAT).

So long as you purchase item/s worth £2,000 or more in one single transaction, then you’re able to claim back tax. For more specific information, take a look at the VAT notice 733, section 15.2.

How Aardvark Accounting can help

Understanding claimable expenses can become tricky, and It’s always advisable to run any planned purchases past a specialist contractor accountant before taking action, to ensure you’re able to claim back as much as possible. Here at Aardvark we advise Limited Company contractors on all things expenses related and how to run their Limited Company in the most tax efficient way possible, ensuring that they’re taking home as much of their contractor pay as possible. Sounds like the kind of expert advice you need? Get in touch today to find out more.