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Are purchased contracts an expense or an asset?Business Community Home > Finance and Tax Forum > Business Expenses Forum |
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| Original Message Added : 28 Jan 2012 |
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| Reply : 30 Jan 2012 It is assumed you have not purchased a business or part of a business or intellectual property. Chris Whiteley 07790-816592 Offices in most UK cities |
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| Reply : 31 Jan 2012 So if the contract has a market value of 100 pounds but you did paid 120 pounds you can consider the 20 pounds as goodwill and the 100 pounds as expense. In practise it is very likely easier to consider it all as an expense. This depends on the volume and the impact on your profitability. It is quite subjective. Yours Ahsan Pijlman |
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| Reply : 2 Feb 2012 NB the relevant bit is whether you trade as a sole trader or a limited company, as you would be able to write off the goodwill as a ltd co and get tax relief, but not as a sole trader. If you haven't already done so, I would suggest appointing an accountant, as planning like this can save money. |
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| Reply : 7 Feb 2012 You need to consider what has been purchased. Does the price paid include and equipment on site? If so you should agree with the seller the value of the equipment and treat that part in the same way you would treat ordinary equipment purchases and claim capital allowances for tax. The remainder of the purchase price is either capital or revenue in nature. Particularly if you are just starting out in business or still in the initial growth phase it is very likely to be capital and regarded as an intangible asset, goodwill. For accounting purposes it is recommended that you write off the cost of each contract purchased over the life of that contract. If you are trading as a limited company relief against corporation tax may be available depending on circumstances. If you are a sole trader then no relief is available for the write down for income tax purposes but keep a note of the costs for capital gains tax loss claims. A mature business may be able to argue that it is part and parcel of its trade to buy and sell such contracts. Kind regards Barry
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| Reply : 25 Feb 2012 Thanks Harry Lee |
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