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AIA or WDA? Computer purchase when setting up LTD

Computer equipment for new ltd company- should I claim AIA or WDA?

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Hello,

I'm wondering if I can claim AIA on computer equipment I bought for my new limited company (a sole director company), or if I have to claim WDA instead?

I bought the equipment on my personal card and then had the company invoice me, so I'm a little unsure if HMRC will decide that "the item doesn’t qualify for AIA (for example, cars, gifts or things you owned before you used them in your business)".

The equipment was all new and was delivered after the company invoiced me for it so has not been used outside the business.

The timeline is as below:

17th November- order and pay for the equipment with my personal card

20th November- Ltd company starts trading

20th November- Ltd company invoices me for the equipment

27th November- Equipment arrives

15th December- Ltd company pays the invoice for the equipment

Any advice would be gratefully received!

Replies (32)

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Replying to David Ex:
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By Tax Dragon
08th May 2021 07:44

That's the AIA part of the question. Even for that, you've kind of picked the book up at chapter 3. (You hopefully know the earlier chapters already. OP is DIYing so needs to start from the beginning.)

@OP, if you're not going to use an accountant, you need to upskill yourself, which means you will have a lot of reading to do. You ought to read the whole of the PMA part of the manual - for your present query, at the least look at the contents pages. Look at CA20000, CA21000, CA23000. Read the relevant chapters. And THEN look at CA23080 as David Ex recommended. (Rule 1 is always read sections in context. The context for CA23080 is the PMA part of the manual.)

Re the WDA part of your question, turn (with the context rule in mind) to CA23200.

Read the rest of the PMA headings too, as some of them are potentially of interest/relevant to you.

There's another vital aspect to context, incidentally. Your business. You know your business. If you hired an accountant, they would learn about your business. Your business (more accurately, your company's business) provides the context for all your questions. Whilst folk in here may well seek to answer your questions for you, they will be doing so in ignorance of that context. This forum has taught me quite how opinionated many of we professionals are. We will happily express a view about anything, when we know nothing about it. With that mindset, what does context matter?! It matters a great deal. I have seen many an answer in here that (IMHO) was wrong, simply because no account had been taken of context.

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By Calculatorboy
08th May 2021 06:45

You've got your invoicing wrong , get an accountant

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RLI
By lionofludesch
08th May 2021 07:37

The company invoiced you?

Surely the other way round?

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Replying to lionofludesch:
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By Tax Dragon
08th May 2021 07:52

@OP.... detail can be just as important as context.

Not a great start here.

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Replying to Tax Dragon:
A Putey FACA
By Arthur Putey
08th May 2021 09:43

Should he also ask about FYA? Or does that only apply if he bought it from OCG World?

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Replying to Arthur Putey:
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By Tax Dragon
09th May 2021 07:26

With two small tweaks

Arthur Putey wrote:

Should he also read about FYA? Or does that only apply if the company bought it from OCG World?

this is two excellent questions (dressed up as a joke).

A1. Yes, OP should at least make him/herself aware of FYA. If s/he took my advice to read the PMA headings, s/he will be so aware. (Better advice is probably to appoint an accountant, of course; OP may not realise how much [else] s/he is unaware of.)

A2. Who the trader (here, the company) acquired the asset from can make a difference to the tax. Another bit of PMA (CA29030) refers to s265 (though it is yet to be updated for the change to s265(4) - relying solely on the manuals has its drawbacks) and provides an example of this.

What should have happened is that the OP told the seller of the computer equipment that s/he was buying on behalf of the OP's company and then put in an expenses claim to said company. What seems to have happened instead is that the OP bought the equipment him/herself and then sold it to the company. Stupid*. Potentially created a problem. (Actually, several problems. The resale to the company was clearly for more than the equipment was worth - by the amount of VAT, if nothing else.)

OP, others may suggest you don't worry about your gaff. I tend to stay away from such discussions. You may well have intended to buy on behalf of the company and simply got the paperwork wrong. That's stupid* but might not be fatal. What if the company didn't exist until 3 days after the purchase? Still not necessarily fatal, but you need someone called Justin to step in to explain a further point. I've said more than enough already.

*To bastardise a well-known saying, there's stupid, damn stupid and DIY. Serious question: why have you chosen not to appoint a good accountant?

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Replying to lionofludesch:
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By aem2020
08th May 2021 11:22

Hahaha yeah that's right! It was a long week...

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By zebaa
08th May 2021 09:44

I assume he/she means the computer supplier, but I could be wrong. As we are at it, we don't know the cost either...

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By bernard michael
08th May 2021 09:51

What is the value of the equipment ?? If less than £1500 write it off to expenses

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Replying to bernard michael:
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By Tax Dragon
08th May 2021 10:27

I didn't know accountancy had such hard and fast rules. Does the £1500 get adjusted for inflation (as happens with tax thresholds?)

Anyway it doesn't help the OP, who would have to add it back in the tax comp if it's expensed, subject to being on the cash basis - another part of the context. (@OP - see my point?)

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Replying to Tax Dragon:
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By bernard michael
08th May 2021 10:58

Tax Dragon wrote:

I didn't know accountancy had such hard and fast rules. Does the £1500 get adjusted for inflation (as happens with tax thresholds?)

Anyway it doesn't help the OP, who would have to add it back in the tax comp if it's expensed, subject to being on the cash basis - another part of the context. (@OP - see my point?)


It doesn't have H & F rules it's what I tell clients is a reasonable figure below which it's not worth capitalising purchases
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Replying to bernard michael:
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By Tax Dragon
08th May 2021 11:09

PEven if that one item is 10% of turnover and 25% of total spend?

(In other words, have you made up your own H&F rule?)

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Replying to Tax Dragon:
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By bernard michael
08th May 2021 11:13

Tax Dragon wrote:

PEven if that one item is 10% of turnover and 25% of total spend?

(In other words, have you made up your own H&F rule?)

No - I got if from a course I once attended. As they say in the slimming ad "It works for me "

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Replying to Tax Dragon:
RLI
By lionofludesch
08th May 2021 11:22

Tax Dragon wrote:

PEven if that one item is 10% of turnover and 25% of total spend?

(In other words, have you made up your own H&F rule?)

I agree. £200 is capital for some of my smaller former clients.

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Replying to bernard michael:
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By aem2020
08th May 2021 14:03

It's roughly £2k and the business will turn over about £40k in the year in question

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By tom123
08th May 2021 11:25

I go with £1k where I am, but that is a £4m t/o for context.

Especially in an era of AIA anyway.

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Replying to tom123:
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By Paul Crowley
08th May 2021 20:55

But is that really a measure to control asset loss?
The real issue should be who decides.
I let the client decide as HMRC only interested in the correct tax being paid.
Client then needs to decide a depreciation policy that is appropriate if capitalised

I see the only issue here for OP is tax.

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Replying to Paul Crowley:
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By Tax Dragon
09th May 2021 07:21

Paul Crowley wrote:

I see the only issue here for OP is tax.

I agree. I don't know why Bernard mentioned his dubious accounting policy that has no relevance to tax. (Maybe I'm the only Awebber with software that includes a "capital items expensed" box? The point being that, whether the policy is to capitalise at Bernard's £1500, Tom's £1000, Lion's £200 or some other figure, the capital threshold for tax is £0. Good news though - that does get adjusted every year for inflation.)

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By fawltybasil2575
09th May 2021 17:00

@ aem2020 (OP).

To answer your question directly, yes you CAN claim AIA.

The expenditure is considered to have been claimed on the date in which the company commenced trading.

The key word in your question is “for”, ie the equipment was purchase FOR the company.

In your case the equipment was purchased only three days before the company commenced trading. You do not state when the company was formed, or when the company bank account was opened, but I would surmise that the former of those dates was before 17 November 2020 (albeit the matter is academic). I mention the points only as background to the fact that you personally were clearly, when acquiring the equipment, acting (no doubt of necessity on your case) as AGENT “for” the company, NOT with the intention of using the equipment personally.

You will perhaps appreciate that it is a very common occurrence for persons who form companies in circumstances similar (or identical) to yours to purchase equipment prior to the date on which it is used by a newly formed company.

[For the avoidance of doubt, even if the company was formed on 18 or 19 November 2020, the above reference to your personally acting as agent (for the company) still holds good (ie one can be regarded as agent for a company “in the throes” of being formed].

Basil.

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Replying to fawltybasil2575:
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By aem2020
10th May 2021 10:30

Hi Basil, thank you so much for your time, that is massively appreciated

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By tom123
09th May 2021 17:17

I don't want complete cxxp on my fixed asset register, hence my choice of £1k.

I do have a category called "small tools" in the P&L that we do use.

Can't recall, off hand, whether these get added to a general pool for tax at year end.

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Replying to tom123:
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By bernard michael
10th May 2021 10:14

tom123 wrote:

I don't want complete cxxp on my fixed asset register, hence my choice of £1k.

I do have a category called "small tools" in the P&L that we do use.

Can't recall, off hand, whether these get added to a general pool for tax at year end.

That's exactly why I suggested a capital asset level.

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Replying to bernard michael:
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By Tax Dragon
10th May 2021 10:42

But the question was about tax.

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By Tax Dragon
10th May 2021 07:35

Basil seems to have landed the fish I was trying to teach you how to catch.

Two points.

1. I find that approach less helpful. That's why I generally avoid it - if you're going to DIY, you need to learn to fend for yourself. (There's a lot of technical knowhow behind Basil's answer. A lot more than you'll realise.)

2. Basil always speaks as if his answers are unquestionable, certain beyond doubt. Yet (take his reply here), unless he has superpowers, he is of course making some assumptions about the business context. Very reasonable assumptions of course, but assumptions nonetheless. (We all make assumptions in here, almost every time we answer a question - certainly a DIYer's question. Another reason I often point to where the answer might be, not say what I think it is.)

[2A. Basil also tends to hone in on one word or turn of phrase (here, "for") and hang his whole answer from that word or turn of phrase. On this occasion I agree with him about that. You were though stupid with the paperwork. Also, luckily for you, you don't need Justin now - see the "throes" point.]

A question back at you if I may. You said you were "a little unsure if HMRC will decide that 'the item doesn’t qualify for AIA (for example, cars, gifts or things you owned before you used them in your business)'." Do you mind expanding on this? Given the trade started on 20th November and the equipment didn't arrive until 27th, how was the equipment owned before it was used? What's your thinking? (Does CA23020 help or hinder?)

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Replying to Tax Dragon:
RLI
By lionofludesch
10th May 2021 08:43

Surely you always own things before you use them. You own it when you buy it and it's still in the box. You take it out of the box to use it.

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Replying to lionofludesch:
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By Tax Dragon
10th May 2021 09:11

That's dumb-down guidance for you. https://www.gov.uk/work-out-capital-allowances

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Replying to Tax Dragon:
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By aem2020
10th May 2021 10:28

Thanks so much- this is so massively appreciated and the trawl through the PMA guidance has been v.helpful!

In response to your question it was the fact that I initially bought the equipment on my personal card that made me unsure: I was not sure if the simplified guidance implied that it would only be eligible for AIA if it had been bought on the company's card. In other words, if having bought it on my personal card meant that it had been "owned" before it came into the business.

CA23020 was helpful, but didn't directly address the source of my uncertainty- the complication of having bought it on my personal card first

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Replying to aem2020:
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By aem2020
10th May 2021 10:37

by 'complication' I mean of course stupidity' or 'mistake'

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Replying to aem2020:
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By Tax Dragon
10th May 2021 13:01

aem2020 wrote:

In response to your question it was the fact that I initially bought the equipment on my personal card that made me unsure: I was not sure if the simplified guidance implied that it would only be eligible for AIA if it had been bought on the company's card. In other words, if having bought it on my personal card meant that it had been "owned" before it came into the business.

Thank you for answering my question.

On Basil's analysis, you didn't own it personally. You held it FOR (and on behalf of) the company. The fact that you thought you owned it personally is why of course you then 'sold' it to the company. It's not helpful that you thought that, but I want to make a slightly bigger point.

In the phrase "for example, cars, gifts or things you owned before you used them in your business" the words "your business" refer to a business you own. But you are misreading it. Remember: you are not your company. So... you don't own a business. You own a company. The company owns a business. Getting that straight in your mind will avoid all manner of misunderstanding. If you persist with DIY. (Or, rather, failing to get it straight will massively increase your errors.)

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By fawltybasil2575
10th May 2021 20:23

@ Tax Dragon. I note the following from your post at 7.35:-

(i) “2. Basil ALWAYS (emphasis added) speaks as if his answers are unquestionable, certain beyond doubt. Yet (take his reply here), unless he has superpowers, he is of course making some assumptions about the business context”.

(ii) “[2A. Basil also tends to hone in on one word or turn of phrase (here, "for") and hang his whole answer from that word or turn of phrase”.

I do not wish to be unkind, but I shall not be drawn into protracted debate (lacking both time and inclination) but those comments are both simply untrue.

As regards (i), I frequently (in my AWEB posts -which are minimal in comparison with your own prodigious and extensive output) caveat my responses with “IMHO” (or similar). On this occasion, noting that the thread had wandered off onto a couple of unrelated tangents, and given that my answer was, from my experience of clients’ tax affairs over many years (and my records and recollections of statute and case law) correct, I felt that it was in the OP’s interests for me to, on THIS occasion, provide a forthright answer [an answer to which I hold firm].

To that end, I had read the OP’s previous AWEB questions (and answers) to ensure that my responses were correct in the context of his company – every single AWEB post of course must of necessity be impliedly prefaced with “unless there is some undisclosed exceptional fact(s) of which I am unaware” (or similar)].

Notwithstanding my above comments, I would NEVER seek to accuse another member of ALWAYS adopting the arrogant pose which you have attributed to me.
As regards (ii), I most certainly do NOT “hang his (ie my) answer from that word or turn of phrase”.

When one studies (after reading legislation or guidance) several times over, one sometimes, as in this case, recognises a word or phrase which supremely illustrates what one considers to be a critical and/or illuminating point; and hence one highlights that word, which is what I did in this case. To reaffirm, one studies the entirety of the relevant text and, if one recognises a key word, one emphasises that word. In short, one determines the key point and THEN quotes (if there is one) a key word/phrase (the opposite unfortunately of your assertion).

With every respect, there are some other errors in your post, which are disappointing, but I do not intend to outline them. Your extensive knowledge of taxation deserves a more respectful approach [whilst a separate matter, stating that the OP made “stupid” comments (when he did no more than make a couple of inadvertent mistakes, which arose simply from his misunderstanding of the position – a misunderstanding which can validly be attributed to many other accountants) – is not IMHO helpful, notwithstanding his very graciously accepting that unfortunate epithet].

I always accept “contrary views”, in the right spirit, on any thread.

Basil.

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Replying to fawltybasil2575:
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By Tax Dragon
11th May 2021 07:00

I do say too much. You're right. The greater the output, the more likely it is that parts of it are not thought through. You're right. I retract the "always" and apologise for any unintended (thoughtless) hurt it caused.

I'm pleased that you have seen fit to explain some of the thinking behind your answer. It proves my point about there being "a lot of technical knowhow behind Basil's answer."

Whilst I also have no wish to protract this discussion, I note that your, previously unsaid, caveat* does qualify the "yes" answer to which you "hold firm". If you can reread my comment(s) without being affronted thereby (my fault entirely - again, apologies), you will I hope realise that I do not (and did not) disagree with the "yes"; I merely added a caveat. You clearly agree that adding a caveat was not erroneous, as you have now done the same yourself. We are in agreement. Given that, I'm not sure what you see that was erroneous.
(And, FWIW, I did not make the remark you attribute to me about the OP making stupid comments. Were you to look at the existing paperwork, you would see a purchase by the OP and a subsequent sale to the company. Were you to think about why the OP asked the question in the first place, you'd realise it's because the OP thought s/he'd bought the equipment personally and sold it to the company. The only word anywhere in the thread that points to an alternative conclusion is "for".)

* Your caveat: every single AWEB post of course must of necessity be impliedly prefaced with “unless there is some undisclosed exceptional fact(s) of which I am unaware” (or similar)].

Well, no. Not if you don't make assumptions.

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