Recording raw materials as general purchases?

Hi, new user here. We run a campsite and are converting some sheds to compost toilets. I have purchased various items for each unit including timber, paint, water pumps, toilets and sinks. How do I record these items as purchases - should they be general purchases?

Then presumably the finished units will have a market value and should be considered fixed assets at that point? apologies complete newbie!

I would first read up on Tangible fixed assets - expenditure to be capitalised and then decide how you wish to proceed. I’m afraid your question is more for your accountant to answer. And I would not take the advice of any member here as an answer to how you proceed with this situation.

As an example, if you purchase materials in order to create an asset you can not claim those materials as an expense because it isn’t tax deductable, the asset you create will generate depreciation, and it is that which is tax deductable. So in answer to your question, no it does not go in general purchases, nor any other expense nominal, which is why I suggest you speak to your accountant as doing this wrong will have a massive negative affect on your tax position should you ever get an enquiry.

First of all, are you a sole trader or partnership business or do you run a limited company?

Generally speaking, any costs entailed in building or converting your toilets can be capitalised and then depreciated over the life of the asset. They should be tagged to one of the fixed asset codes and it’s also best to keep a fixed asset register separately, e.g. on a spreadsheet. These costs will sit in your balance sheet.

Once the toilets are completed, you would then start to depreciate them. Work out roughly how long you expect them to last. If this is, say, 5 years, then each year you would transfer a fifth of the cost from the balance sheet to the profit & loss account (by way of a journal which debits depreciation charge and credits accumulated depreciation in the balance sheet).

At the end of the five years you will have “written down” the asset to nil.

On your tax return, you must add back depreciation as it is a disallowable expense. However you can claim capital allowances instead - usually the full cost as part of the Annual Investment Allowance. Whether you use this or claim a general 18% writing down allowance will depend on whether you are making profits or losses.

See the HMRC website for more details on capital allowances.

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