Taxation on purchase of Laptop

spectre

I'm an IT contractor and need to purchase a new Laptop in the coming months.

Lets say for argument sake, it costs 1500 ex VAT.

My company normally makes a profit of zero at year end, with all monies paid to me as salary.

I'm confused as to how the 1500 will be treated taxwise seeing as my corporation tax bill is zero.

BarMcc

If the company purchases the laptop it will get a tax deduction (capital allowance) of 12.5% of purchase price per year for 8 years. Assuming you are VAT registered this would be an annual deduction of €187.50.

If you have a net profit of 0 before this allowance you will have a tax loss.

How is the company paying for laptop if all income is paid out in salary? If you are giving loan to company you should reduce your salary by €187.50 a year and use this to repay your directors loan. This way your taxable profit will remain 0

spectre

BarMcc wrote: »

If the company purchases the laptop it will get a tax deduction (capital allowance) of 12.5% of purchase price per year for 8 years. Assuming you are VAT registered this would be an annual deduction of €187.50.

If you have a net profit of 0 before this allowance you will have a tax loss.

How is the company paying for laptop if all income is paid out in salary? If you are giving loan to company you should reduce your salary by €187.50 a year and use this to repay your directors loan. This way your taxable profit will remain 0

Thanks for that BarMcc. So am I correct in saying this:

I give the company a director's loan for the 1500 and have the company repay me the loan over 8 years using the net taxable profit of €187.50 pa.

What about paying me normal salary less the 1500. Would this work out more costly?

Shane732

spectre wrote: »

Thanks for that BarMcc. So am I correct in saying this:

I give the company a director's loan for the 1500 and have the company repay me the loan over 8 years using the net taxable profit of €187.50 pa.

What about paying me normal salary less the 1500. Would this work out more costly?

Basically the company needs €1,500 to purchase the laptop. Assuming the cash @ bank of the company is nil then company the has to get the funds from somewhere to purchase the laptop.

Option 1 is for you to loan the company €1,500 thus creating a directors loan of €1,500. The company buys the laptop and owes you €1,500. The company can repay the loan owed to you at any point in time provided it has the cash (generally speaking). This can be repaid tax free to you as the money you loaned to the company initially is after tax cash and the tax has therefore been paid. The end result is that you get your €1,500 back tax free in time. If the company is left in a nil situation then you'll probably have to reduce your salary in order to repay the loan in the future.

Option 2 is that you reduce your salary by €1,500 in order to allow the company purchase the laptop. In this case you're not actually owed anything from the company. The question as to whether this option works out more costly is irrelevant as you're not comparing like with like. Is this case you never actually receive the €1,500 whereas in the other situation you receive the €1,500. If you wish to increase your salary by €1,500 at some point in the future then you'll pay PAYE/PRSI etc.. on it at this point in time.

From the companies point of view it purchases the laptop and can claim capital allowances @ 12.5% pa against the companies profit. If the company has no profit then the capital allowances can be carried forward as a loss and used to reduce the companies profit when a profit does arise.

spectre

Thanks Shane, that answers my question