Newbie write off against tax question

yeleek

My wife is changing from employee to a self employed locum... She needs a laptop for her work. How does the writing off of computer equipment (for this example) work?

Would she reduce the value of the laptop from the tax to be paid? or can she only write off the VAT of the laptop from the tax she'd pay?

Been trying to get our heads round it, and not quite there.

Many thanks

Bean_Counter

If it were me, I'd be claiming the VAT back (assuming registered) then trying to convince my accountant that it is a revenue item and 100% tax deductible. "I mean Mr Accountant, I intend to replace it in a couple of years time, so how can that be a capital item to depreciate..."

Treading_Water

Hi
Unless she is VAT registerd the VAT won't come into this issue anyway.
Generally she would be allowed to write off 40% of the cost against 1st year profits and the rest equally over a further 3 years unless, in that time she had to replace it. In which case she would be able to write off any residual value in that year, plus 40% of the replacement costs.

yeleek

Thank you for the replies!

No shes not VAT registered...

The writing off. Sorry to be a newbie but what part is it written off against? i.e. if she earns 30k a year pre tax, and her tax bill was say 33% of that (10k) would the price of a laptop (say 400 quid) come off the 30k or the 10k?

Thanks

Ben

Bean_Counter

yeleek wrote: »

Thank you for the replies!

No shes not VAT registered...

The writing off. Sorry to be a newbie but what part is it written off against? i.e. if she earns 30k a year pre tax, and her tax bill was say 33% of that (10k) would the price of a laptop (say 400 quid) come off the 30k or the 10k?

Thanks

Ben

To be honest it depends on the treatment for tax. At its most simple if the item is tax deductible rather than capital, then it comes off the £30K figure.

What you are doing is taking your income, deducting your costs (of which there are likely to be quite a few) to get to your taxable income. Then tax is worked out on that.

There are quite a few good threads on here that give an indication of the sort of costs that you can incur when you are self-employed.

yeleek

OK thanks - think she needs to clarify her specific situation with the accountant. Thanks guys.

Bean_Counter

yeleek wrote: »

OK thanks - think she needs to clarify her specific situation with the accountant. Thanks guys.

Absolutely. Her accountant is the best person to offer advise on the best way to structure herself if she is starting as self-employed as they will have all the details to hand.

Sometimes just reading snippets on a thread you can pick up the wrong end of the stick!

Spendywendy_2

Hello I'm an accountant. Thought I could help.

Example for you:

Self employed income: £30,000

Cost of laptop £400. 50% first year capital allowance ( if purchase made in year ended 05 April 2008)= 50% x £400 = £200
Overall taxable profit for the year ended 05 April 2008 = £30,000 - £200 = £29,800 which you are taxed on.
Basic rate tax is £22% and self emplyed class 4 NIC is 8% on above profits.

The general rule is that the following trading year you can get more allowances at 25% based on what is left unclaimed of your expenditure ie £200 balance x 25% = £50 and so forth each successive year.

However, please note the rules for capital allowances are changing so you can get the full £400 as a cost deductible from your income instead of the £200 only in a year. This does mean that you would need to delay your purchase until after 05 April 2008, so it may not be a commercially viable course of action. The Revenue have not fully disclosed the exact way the change to the capital allowance system is going to work and what happens to any old balances.

Do see your accountant - you can discuss other costs and you need to make sure that you are happy that your self employed status is legitimate.

Hope this helps..

yeleek

Spendywendy - thats great! Thank you. Don't think she can wait till next april but it helps to know these things