Annual Investment Allowance and accounting

Good morning!

I have been doing my own business accounts for about 8 years (self-employed) and have in the past always put large purchases down as assets, eg. computers, office furniture, printers etc., and have depreciated them over a period of time.

I had never looked at the Annual Investment Allowance previously, but clearly it appears that I can to a limit write off qualifying purchases, such as a new laptop that I just purchased, all in one go although I would need to also declare any income from the sale of the item later if it were disposed of for money.

I have also read in numerous places that certain items, particularly IT, that are below a certain value should just be written off at once as opposed to depreciated over time. Originally I included thngs like RAM, hard drives etc. as assets but over the years I have come to write them off upon purchase rather than depreciate a £50 hard drive over a number of years. But where is the line, eg. a £200 laptop vs a £1200 laptop etc.?

So my questions in summary:

  1. Using a £1,000 laptop as an example, how do I account for it as a purchase against the AIA and write it off in one go, as opposed to as an asset depreciating over time, in Quickfile?

  2. Where is the line in terms of what to put as an asset or what to write off immediately, especially with regards IT/office equipment? I appreciate that there may be several different takes on this one.

Thank you for any help offered.

AIA is not an accounting entry, it is only shown in a tax return. You book asset as normal to depreciate which can have a policy of say anything less than 500 not capitalised

Thank you for your swift reply, however like many others who have asked similar questions in the forum the answer has to a degree gone over my head…

Where I am confused is that I have to allocated the purchase to something, so in this case it would be under a custom nominal code of “Computers and IT” which I have as an asset account.

I would depreciate the asset by say 25 percent over the number of days I owned it in this tax year which would then be shown as a loss/expense on my P&L. From there I am lost. I get that the total for the AIA would go on the tax return, but I am confused how it will all tie together when the P&L for the tax return has already accounted for depreciation of the asset.

Deprecation is not a tax expense, all tax adjustments (add backs , disallowed and allowances etc) stay on tax return calculations they don’t get reflected on accounts only final tax liability end in accounts

I am clearly misunderstanding you on this one as my accounts for the last 8 years show depreciation off office equipment and computer equipment as operating expenses deducted from from my income, and the final net profit figure used on my tax return reflects this.

Thats not correct way to file tax return

Perhaps you could explain to the op why they don’t include Depreciation in the profit and loss?

Op what Faraday is saying is, claiming things such as AIA or capital allowances is something which is included in your tax return to reduce your tax, it’s not an accounting entry.

If you decide you use AIA there are rules surrounding what you can and can’t do depending on whether you also try to claim capital allowances. I’d advise that you read up on the rules surrounding AIA first or seek an accountant to advise you.

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