Pens, printer ink, a new office chair and a laptop can all arrive on the same supplier invoice. Accounting treats them differently: consumables are expenses, while equipment that will be used for several years is a fixed asset unless it falls under the business’s capitalisation threshold.
Three categories on one invoice
| Item | Typical account | Why |
|---|---|---|
| Paper, ink, envelopes, cleaning products | Office supplies and stationery | used up within months |
| Headsets, keyboards, a desk lamp | Small equipment (expense) | lasts longer but below the capitalisation threshold |
| Laptops, desks, a large printer | Office equipment or computer equipment (fixed asset) | used for several years and above the threshold |
Split the invoice line by line when it is coded. One line coded to “Office costs” for the whole invoice usually hides an asset.
Setting a capitalisation threshold
There is no statutory threshold in the UK. Each business sets one in its accounting policy, often somewhere between a few hundred and a couple of thousand pounds per item, and then applies it consistently. Items below the threshold are expensed even if they last for years. Groups of items bought together for one purpose, such as furnishing a new office, can be capitalised together even if each is individually small.
Capital allowances are a separate question
How an item is treated in the accounts does not decide its tax relief. Equipment that is a fixed asset in the accounts usually qualifies for capital allowances, and for most small businesses the Annual Investment Allowance gives full relief in the year of purchase. Equipment expensed under the capitalisation threshold is generally deducted as an expense instead. In either case the tax computation should be reviewed, because client entertaining items, private-use items and assets bought on hire purchase have their own rules. For unincorporated businesses on the cash basis, most equipment is simply deducted when paid.
Posting a mixed invoice
A supplier invoice for £1,560 including VAT contains £150 of stationery, £150 of headsets and a £1,000 laptop (all plus VAT), and the company capitalises items over £500.
| Account | Debit | Credit |
|---|---|---|
| Office supplies and stationery | £150 | |
| Small equipment | £150 | |
| Computer equipment – cost | £1,000 | |
| Input VAT | £260 | |
| Trade creditors | £1,560 |
Home workers and private use
Equipment bought for staff to use at home remains a business asset if the business owns it, and there is no taxable benefit where private use is not significant. Paying staff to buy their own equipment is different: it is a reimbursement and may need reporting. For the self-employed, only the business proportion of an item used privately is allowable.
Keeping the expense account honest
- Review the account at the year end for anything above the threshold.
- Watch for recurring software subscriptions coded here; they belong in software and subscriptions.
- Keep supplier invoices: an item without a VAT invoice cannot support a VAT reclaim.
Assets above the threshold go to the register described in fixed assets in the chart of accounts.