Most assets lose their value over time and as your Accountant, we need to account for this decline in value year by year. To do this, rather than these purchases being treated as typical business expenses, they are instead considered as assets that lose value over time, affecting their potential resale value (this is known as depreciation).
This means that rather than claiming the total cost of the item in one go, you instead need to claim for the total amount it depreciates each year.
For example, if you buy a laptop for $1000 for business purposes, this would depreciate over three years at a rate of approximately 1/3 (or $333) per year. The assumption is that if you resold the laptop after one year, it would only be worth $666. If you resold it after two years, it would only be worth $333 dolllars, and if you tried to resell it after three years, it would not be considered to hold any value. NB: Generally, any equipment you purchase in order to do your job that costs more than $1,000 is depreciated over three years (previously limit up to March 2020 was $500).
Equipment that is considered as an asset requiring depreciation includes things such as computers and laptops, mobile phones, camera equipment, tools, handsets, software and upgrades. Motor Vehicle purchases are also treated as assets but we tend to depreciate these over 5 years (using a different depreciation rate) instead as the resale value is much higher in the earlier years and the expected life of a vehicle is much longer.
How to claim an Equipment Purchase
All you need to do is to raise the item you have purchased like any other business expense using the correct category e.g Equipment (Purchase), or Motor Vehicle Purchase. We then take care of the depreciation for you automatically.
Once approved, you can then see the expense and depreciation is recorded in your Asset Register in the Hnry App.
- If you sell an asset, you must let us know so that we can record this in your Asset Register. You will need to provide us with the date the asset was sold and the amount it was sold for.
- From 1 April 2020 - 31 March 2021, in response to the Covid-19 crisis, the Government has changed the depreciation threshold so that only items that cost over $5,000 need to be depreciated. This means that if you purchase any equipment in the 2020/21 tax year that is under $5000, you will receive the full tax relief in one go through a reduced overall income tax rate. and these items will not be recorded as Assets.