September 4th, 2018.

If you’re starting your own business, you may well have heard about capital, or ‘fixed’ assets. But what exactly are these and how do they affect your business?

What exactly are capital assets?

Capital assets tend to be any pieces of equipment you use in your business that will be useful for more than about a year. If you’re a freelance web designer, that’d be your computer, desk and chair. If you’re a dressmaker, it’d be your sewing machine.

They’re called ‘capital assets’ because, when you spend money on them, HMRC calls this ‘capital expenditure’, which is distinct from the day-to-day running costs of your business, which are called ‘revenue expenditure’.

Why do I have to separate these out?
They’re treated differently from day-to-day running costs, both for tax purposes and in your accounts but more about that in a moment. Is there a lower cost limit for when an item becomes a capital asset?HMRC hasn’t set one, but if you have an accountant, (s)he might have a set limit.

However, usually it’ll depend on the size of your business. For example, a £25 phone would probably be classed as a day-to-day running cost. A £250 phone system would be a capital item for a small business, but probably a day-to-day running cost for a larger organisation.

For the full story at smallbusiness.co.uk CLICK HERE.