Freelancers' Questions: How to buy a laptop and software for business?
Freelancer’s Question: I plan to do some freelance work and so need to buy a laptop and Microsoft Office software, plus some specialist software.
What’s the best way to buy all this software, and hopefully the laptop, as a sole trader? Do I buy it outright or just expense it and get the tax back? I note that I need the ‘full business version’ of the niche software, but the 'Home and Student' Office package. Is the latter ok?
Expert’s Answer: What you can claim for your software will depend on how much you're going to use it for business and how much, if any, for private use. If you're going to use the laptop and the MS software, say, 90% for business and 10% for personal use, then you would include 90% of the cost of both of those in your accounts. If, however, you've got another computer for private use and your laptop and the MS software will only be used for business, put the full cost into your accounts.
The laptop itself would be a capital asset on which you can claim capital allowances -- unless you've used the laptop for personal use before you start using it for your business (which it doesn't sound like you will). You'll almost certainly be able to claim the Annual Investment Allowance on your laptop, which is 100% of the cost of the laptop that you're including in your accounts. You'd put that into the "Annual Investment Allowance" box on your tax return.
For the software, you have the choice to treat that as a capital asset or as a running cost of your business -- there are no ‘hard and fast’ rules. Typically, if you are paying an annual subscription fee for software, then that would definitely be a running cost, and software for which you pay a ‘one-off’ cost may be either.
HMRC does not say you have to buy a business version of software in order for it to count as a cost of your business -- it's how you use it that matters -- so if you're using it for your business, go ahead and put it in!
The expert was Emily Coltman, chief accountant at online accounting platform FreeAgent.
Editor's Note: Related --
23rd June 2017