Self-employed - claim laptop under expense?

r6mile

Hi all,

Here's my situation. I'm a current part-time postgraduate student, also recently registered as self-employed, as an analyst/researcher/translator. As well as studying 2 days a week, I work for one company two days a week (in their office), and often freelance for other companies (from home) about 1 day a week. Neither of the companies provides a computer, and therefore I am required to use my own laptop.

Though my income is somewhat irregular, according to listentotaxman.com, this year I will be due to pay around £1400 in income tax (plus NI, student loan, etc.).

The time has come for me to replace my laptop, and I wonder whether I can claim it as a business expense. I estimate 50% of its use will be work-related, and the rest for personal use.

I am thinking of buying a 15" Retina Macbook Pro, which with the student discount I can buy for £1530. Given that as a student, I obtain a 3-year warranty, I estimate 3 years to be the life of the laptop.

Am I right in assuming that I should spread the expense of the laptop over the next 3 fiscal years?
If so, should I then divide the yearly cost by 2 (as 50% of it will be for personal use)?
If so, my calculations work out as £255 for each fiscal year. Does that mean that my total income tax bill will decrease by that amount?

Thanks in advance,

PlutoinCapricorn

I have an idea that you have made a mistake common to people new to self employment!

The amount of tax you pay is not reduced by the amount of the expenses, but by the tax that would be due on that amount. In other words, you would still pay 80% of your own money for a laptop.

r6mile

Okay, that makes sense. So buying the laptop will reduce the taxable amount as opposed to the tax owed - thanks for the clarification.
Should I spread the cost of the laptop over 3 fiscal years?

PlutoinCapricorn

In theory a laptop is a capital item that depreciates; in practice many of us just bung the cost of a cheap laptop in the general expenses for the tax year we buy it as prices are dropping and a laptop is hardly a huge asset these days.

If you were thinking of getting an expensive model and taking the cost out of tax owed, you may want to reconsider.

In any case, the deadline for filing figures for 2013/14 will be end January 2015 so there is plenty of time to decide how to claim for the laptop.

zygurat789

r6mile wrote: »

Okay, that makes sense. So buying the laptop will reduce the taxable amount as opposed to the tax owed - thanks for the clarification.
Should I spread the cost of the laptop over 3 fiscal years?

This is a choice you don't have to make, the taxman makes it for you.
You can claim the business 50% against your taxable profits in the year of purchase. This is more generous because the chancellor is encouraging investment capital goods.

r6mile

Thanks for your response, I may indeed now reconsider and get a cheaper model. I now then assume that it will be fine to class it under the expenses for the year I bought it, rather than spread it out because as you rightly saw, it is not a huge expense.

So just to confirm. If I buy a laptop costing £860 (of which 50% is for business, therefore £430 is the business expense), would my taxable income decrease by £430?

culpepper

My understanding is, if you buy it for the business, you can include it's full cost in your list of expenses ,keep your receipts and a spreadsheet of all profits and expenses.
When I filled in my tax return last, you could include the expenses as a figure and then the income as the total ,minus expenses and that was what was used to calculate taxes owed.

Leothecat

Sorry to jump on the back of this one......
I am employed and also self employed. I only earn about £500 per year from SE. The money I earn from SE involves the use of excel and word.
Can I buy a cheapish laptop (approx. £300) and put this against expenses?
TIA

zygurat789

Leothecat wrote: »

Sorry to jump on the back of this one......
I am employed and also self employed. I only earn about £500 per year from SE. The money I earn from SE involves the use of excel and word.
Can I buy a cheapish laptop (approx. £300) and put this against expenses?
TIA

If it's needed yes. Business use to earn £500 compared to private use in 12 months say 1 to 50. therefore total claim £6 tax saved £1.20. Your figures may be a bit diferent but you can work out the implications.

r6mile

I've just called HMRC Self-Assessment to double check, and this is what they've told me:

If the laptop is used for business 50% of the time, then you can claim 50% of the cost under the 'Annual Investment Allowance' in the year of purchase, which reduces the taxable income by that amount.

i.e. if I buy a laptop worth £800, I will mark £400 under the Annual Investment Allowance, which counts as an expense and therefore reduces my taxable income by £400, reducing my income tax bill by £80.

Thank you all for your input!

zygurat789

r6mile wrote: »

I've just called HMRC Self-Assessment to double check, and this is what they've told me:

If the laptop is used for business 50% of the time, then you can claim 50% of the cost under the 'Annual Investment Allowance' in the year of purchase, which reduces the taxable income by that amount.

i.e. if I buy a laptop worth £800, I will mark £400 under the Annual Investment Allowance, which counts as an expense and therefore reduces my taxable income by £400, reducing my income tax bill by £80.

Thank you all for your input!

There's nothing like a second opinion that's just like the first, nice to know we were right.