Capital Assets For limited companies

If you have purchased or are about to purchase a capital asset, such as a computer, printer or office furniture for use in your limited company, you should be aware of the different tax treatment given to such purchases and account for them accordingly.

Any capital assets purchased should be just for business use and any personal use should be insignificant. If personal use is significant a Benefit in Kind charge will apply based on the value of the capital asset.

Here we consider how capital assets are taxed and how you should adjust your available funds to ensure that you can meet your tax commitments.

Capital allowances & tax relief

The tax relief incurred in purchasing a capital asset cannot be claimed using the normal expense claim procedure. They attract a different tax treatment in the Company Accounts known as Capital Allowances. These are briefly outlined below but discussed in more detail in the Company Tax section under Corporation Tax.

In the first year of purchase the Capital Allowances for plant/equipment (known as an annual investment allowance) are 100% of the full cost,( VAT is included if you are not vat registered) up to a ceiling of £1,000,000  from 1st January 2019 to 31st December 2020. Corporation Tax relief is currently calculated at the rate of 19%.

Calculation example:

Laptop purchase value 1,000.00
Annual Investment Allowance @100% (1,000.00)
Written down value carried forward NIL
Corporation tax relief - £1,000 x 19% 190.00

Transferring the capital asset

If you purchase a capital asset personally you should transfer the asset into the ownership of the limited company. This is achieved by writing a company cheque to yourself ensuring there is a full paper trail of the transaction. Write out a receipt for the payment made and submit it with your Company Accounts.

Receipt example:

I, Mr. Smith, hereby transfer a laptop computer
For the full value of £1,000 incl. VAT (if you are vat registered)
To A Smith Limited
On 31 March 2018

The original purchase invoice should be attached as evidence of personal ownership.

Ensuring sufficient cash is in your company after paying for the asset

The expenditure is purely capital and not processed until the end of the financial year. You will need to allow for this to maintain the appropriate level of funds in your company. To ensure that your company still has sufficient funds for the tax liabilities after the expense, you should adjust your available funds for payment as a dividend as follows:

Capital Asset purchased, value £1,000

Company profit after tax £2,500.00
Less: Net Directors’ Fee £732.00
Expenses £100.00
Available dividends £1,668.00
Less: Cost of Capital Asset £1,000.00
Revised amount drawn as a dividend £668.00

Personal use of a capital asset

Capital assets purchased should be solely for business use. Any personal use should be insignificant. If personal use becomes relevant a personal tax charge, known as a  Benefit in Kind charge, will apply based on the value of the capital asset.

The method of taxation depends on the asset purchased. If any personal use is anticipated it may be better to acquire the asset personally. Whether you purchase the capital asset personally and claim the expense as a reimbursement from your company, or directly through your limited company you need to retain a document recording the transfer or an original receipt in your Company Accounts. The receipt will be processed in your financial Year-End Accounts.

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