Tax class of design software

[DonkiDonki]

When needing expensive software for your work such as cad and lighting design which generally have both a high initial cost and expensive annual costs to keep access to relevant features, how much of that cost can be written off for tax purposes?

 

Does it make a difference if you are sole trader or limited.

 

Does it make a difference if you buy outright and pay annual update fees or if you use a lease scheme?

[James Remo]

If it's only used for work purposes then surely it's a 100% write off, no matter how you finance it?

 

Edit

https://www.gov.uk/expenses-if-youre-self-employed/office-property

 

Maybe, maybe not. Unless you aren't doing cash basis books, then as above. Either way your AIA (annual investment allowance) should cover it

Edited November 9, 2019 by James Remo

[paulears]

The term 'write off' and legitimate expense are not the same strictly speaking. Most software would be under the value where it is considered an asset, and recorded as such and then written off over a period of years. Most things like subscriptions and one-off payments for software are too transient to be considered an asset as they have virtually no real re-sale value, so are considered as consumable expenses - so you claim the expense in full to offset against profit. Leasing is similarly an expense, but with no asset component, so just a one-off, or monthly expense in the books. I'm pretty sure my accountant isn't even considering computers or any of the normal items I buy as an asset worth keeping track off and declaring depreciation each year as their worth falls off so quickly.

[Junior8]

Write off the initial cost in year of purchase either using capital allowances or expenses. Show licence renewal as an expense in following years.

 

That seems to be the easy answer.

 

I suppose any debate on where it goes on the tax return would arise from the question of whether you 'own' software that requires an annual licence fee or whether you are leasing same.

[paulears]

My old accountants were big and I was small. As a result, I had loads of kit as capital assets and they charged me quite a lot for my accounts. I moved on recommendation from a friend to a smaller firm where I was in the middle. He explained that the old firm spent ages doing the depreciation calculations on a huge list, and he gave me a list of kit that still had value in the accounts. Hardly anything was still actually on the shelves! I was paying for all this pointless work. He explained that there isn't a fixed limit where expenses become capital items. HMRC allow this to be determined by the business. For me, purchases over £1000 are capital items and below a grand they're expenses. This for me makes sense. He as a motor mechanic where he has 250 as the split point, so his numerous tools become assets which is good as they have lifespans. My MacBook was a three year asset write off, but the Windows PCs aren't. Chinese movers at 300 each aren't either. Makes sense for what I do, and the accountancy bill is lower because they don't have to track and monitor all this!