Capital Expenses for Self Employed

nevets2001uk

I'm a bit confused over capital expenses and what I may be able to claim and what I may not.

I'm just about to regsiter as part time self employed to start selling some of my photographs and photography services. I already own quite a few thousand pounds worth of camera equipment which has been purchased over 3-4 years for my hobby. Now that I'm using it for business purposes will I be able to back claim for some of the purchase costs?

Next onto new equipment, will this too be capital expenses which I can claim back against my tax? I have read differing things over whether it is considered capital expense and if so what percentage is okay to claim on.

Also if I claim back against my tax it's likely to put me overall at a loss. Is this allowed with self employment and what happens from there?

What allowance should I make for any personal use of the items. Going forward I'd be aiming to sell most photographs I take so these would be business use but what about using them for a family birthday etc?

I presume computer equipment and software may also be possible to claim on, but I'm not sure how to split the personal / business use of that as well.

Would camera repairs be considered capital expenses? One of my cameras requires £180 of work but I'm not sure if it's considered an expense I can claim on.

I know I need to talk to a qualified accountant and I will do so. But I'd like to try and get my head around it first so I can go armed with relevant questions and figures to my initial consultation.

Any help and advice would be appreciated. Your personal examples would be great so I can understand how others manage their expenses.

Elaine_Wilson

OK. Quite a few questions so I'll just give a few thoughts.

You arer obviously aware there is a difference between capital and revenue expenditure but are possibly not sure where to draw the line between the two. You are not alone. The legislation just says that capital expenditure must be dealt with under the capital allowances rules and that revenue can be deducted from profits. There is very little extra guidance, everyone relying on case law built up over the years.

I usually try to think of obvious examples, such as a large machine in a factory. This will remain there for years manufacturing widgets or something so is capital. The material fed in for the widgets, and the oil used to lubricate the machine is ephemeral and treated as revenue expenditure.

So in your case, cameras, lenses, filters, lighting equipment, etc. will be capital expenditure. Repairs to the camera would not (unless you improved the equipment so much it would be akin to putting an extension on a property). Computer equipment is also capital. Software could go either way. I would tend to treat any program that only cost a few hundred pounds as a revenue expense.

With the new Annual Investment Allowance the distinction may be academic for small businesses.

Now the more specific questions you asked.

The equipment you already own should be introduced into the business at the start at a fair valuation. I do not think you would be entitled to the AIA on this but could claim the annual allowance of 20% per annum on the reducing balance.

Private proportions are always difficult. In the end it boils down to being reasonable. If you only use the equipment to take a few photos of your own children at each birthday then any restriction would be very small and could possibly be ignored. But if you act as unpaid photographer at your children's friend's parties then a larger restriction would be in order. The same would apply to the computer. Occassional private use is considered incidental, even if you use the imaging program to adjust your own pictures.

I should have perhaps mentioned that the AIA give relief at 100% for expenditure up to £50,000 in the year. Applying this could easily result in a loss and there is nothing wrong with this. The loss could be offset against your other income and repayment of the tax paid on theat income claimed. Of course the more allowances claimed in any one year leaves less to be claimed in later years so, for the government, they will still get their share sometime.