Claiming computer hardware and software expenses via your company

If you need to buy a new laptop or upgrade your PC software, how are these expenses treated for tax purposes? We also review the rules governing the treatment of computer-related purchases.

Business or personal use?

Equipment costs are often the largest expenses a small business incurs.

So, if it’s time for you to upgrade your laptop or perform that long-awaited software upgrade on your PC, you need to be aware of HMRC’s rules if you’re claiming such expenses via your business.

The golden rule applies to how you use your computer equipment on a day-to-day basis. If your company is paying for it, then the equipment must be used for business purposes. Any personal use must be purely ‘incidental’.

HMRC could argue that the equipment has a duality of purpose, and you could be taxed on the purchase price as a ‘benefit in kind’.

How to account for computer-related purchases

Computer equipment, such as a PC, laptop, server or printer (and any other office-related equipment), is treated differently from software in your company accounts.

Standard computer-related expenses

Consumables such as standard software, licence fees and memory cards are treated as standard allowable business expenses.

You account for these costs in the same way as you do for any other day-to-day business expenditure.

Your company can offset the purchase value against its profits, reducing its Corporation Tax liability.

Fixed asset computer-related expenditure

Larger items are of use to your business over a longer period than many standard expenses.

Some typical examples include:

• PCs, including laptops.
• Servers.
• Printers.

Accounting rules treat pieces of computer equipment as ‘fixed assets’, subject to capital allowances. A proportion of a fixed asset’s value is offset against the company’s profits for each year it is considered to have a value.

Find out the difference between how revenue and capital expenses are treated in your accounts.

Under the current Annual Investment Allowance (AIA) rules, you can offset up to £1,000,000 in allowable capital purchases against your company’s Corporation Tax bill each year. More than enough to cover the typical IT contractor’s equipment needs!

You can also take advantage of the Full Expensing rules, which took effect in April 2023. This allows limited companies to offset 100% of the cost of new computer equipment against tax in year one.

Full expensing was made permanent (rather than for just 3 years) in the November 2023 Budget.

We’ve included these details for completeness. In reality, your accountant and/or accounting software will take care of the specific tax treatment of all of your computing-related purchases.

Buying equipment if you’re on the Flat Rate VAT scheme

If you trade via your own company and have joined the Flat Rate VAT scheme (FRS), be aware that there are specific rules which govern the tax treatment of computer equipment purchases.

You cannot usually reclaim VAT on purchases if your business operates under the FRS.

However, you can claim back the VAT element of any capital expenditure items worth £2,000 or more (including VAT).

This doesn’t mean you can only reclaim the costs of a single piece of computer equipment worth £2,000 or more; you can also reclaim the cost of a bulk purchase.

This may include a laptop, printer, scanner, and similar equipment, provided the goods were purchased in a single transaction.

For more details on this specific measure, read VAT Notice 733, Section 15.2.

Keep your receipts safe – just in case

• When you purchase computer equipment or accessories for your limited company, keep all receipts safe.
• Scan and upload any receipts if you use accountancy software such as FreeAgent or Xero.
• If you purchase any computer equipment, ensure the receipt or invoice is in your company’s name, if possible.
• Keep any records related to your purchases safe for at least six years, just in case.

If you have any questions about the legitimacy of any specific expense claim, ask your accountant for advice.