Laptop, PC & software expenses – what can your limited company claim?

Computer hardware and software are two essential expenses for any modern business, and costs can run into the thousands, but what can you legitimately claim against your company’s profits?

This type of business expense can be tricky for directors, especially when installing new software or using a laptop or PC for both business and personal use.

How does HMRC distinguish a genuine business expense from one that benefits both the business and the individual?

Business or pleasure?

The key is to determine how your computer is used on a daily basis.

At the heart of this is HMRC’s core rule: for a company to claim a tax deduction for an expense such as a computer or laptop, it must be incurred wholly and exclusively for the purposes of the trade/business (Corporation Tax Act 2009, s.54).

If the laptop or PC is purchased by the company and provided to you primarily for business purposes, HMRC accepts that there may be some personal use of the equipment.

This means you can send the occasional private email, catch up on the latest news, and maybe even order a pizza for the office. Insignificant private use does not normally create a benefit in kind.

If private use is significant, however, the tax position is different. The exemption for employer-provided equipment may no longer apply and a taxable benefit can arise for the director or employee.

What about software or computer-related purchases?

Computers, including servers, laptops, printers, and other office equipment, are normally treated as plant and machinery for tax purposes.

Most software and licences, including cloud subscriptions, are treated as revenue expenses and fully deductible in the year incurred. More substantial or bespoke software may sometimes be treated as capital expenditure.

Hardware and office equipment come under capital allowance rules.

The current Annual Investment Allowance limit is £1 million. The AIA generally allows a business to deduct the full cost of qualifying plant and machinery from its profits, up to this annual limit.

Companies can also use full expensing for qualifying new and unused plant and machinery. This provides 100% tax relief on qualifying expenditure in the year it is incurred.

For most small limited companies buying ordinary computer equipment, the AIA will often provide full tax relief anyway.

The Flat Rate VAT scheme and tax

If your company uses the Flat Rate VAT (FRS) scheme – introduced to provide smaller businesses with a simpler way to calculate their VAT liability – the tax treatment of computer hardware purchases is covered by separate rules.

If you use the FRS, you can’t normally claim back VAT on purchases. However, you can claim the VAT on a single purchase of capital goods where the total cost is £2,000 or more including VAT.

This doesn’t have to be for a single item, such as a computer, but may include a scanner and printer, as long as the items were bought together as a single purchase. You can read more in HMRC’s Flat Rate Scheme guidance.

Keep records and receipts

Be sure to keep meticulous records and receipts for all hardware and software purchases you make for business use.

That way, you can back up any claim you make to reduce your tax liability and deal with any enquiries from HMRC.

A note on websites and tax relief

Website costs can be treated differently for tax purposes, depending on what you’ve paid for.

Everyday costs such as hosting, domain fees, maintenance and routine updates can normally be deducted from your company’s profits.

Building a new website, or making a major upgrade to an existing one, may be treated as capital expenditure if the work creates a longer-term asset for the business.

Keep invoices and records for the different costs involved, particularly if you’re paying for a significant website build or redevelopment.

Read our complete guide to limited company expenses here.