Contractors’ Questions: Least taxing way to buy a computer?

Contractor’s Question: I am about to buy a computer which is urgently needed for my business. I recently registered as self-employed and am waiting for HM Revenue & Customs to respond. I was planning to include the computer in my tax return. But on the online tax form in the section for purchases, it asks me whether I wish to input a business name. Should I? Or will the receipt suffice along with my declaration of my self-employed status?

Expert’s Answer: I assume, based on the circumstances provided, that you are operating your business as a sole trader and not through a limited company. 

If you are indeed a sole trader then it is sufficient for you to acquire the computer in your own name. But I recommend you purchase the computer from a business bank account and, from now onwards, encourage you to undertake all business transactions through this account, ensuring with each item you purchase that you keep hold of all receipts. 

This will help you to keep a clear audit trail and assist you when preparing your tax return. It is important that you are able to demonstrate that you are using the computer for business purposes and there is not a significant element of private use. If there is, then tax relief should be restricted.
 
However if you are running your business through a limited company, it is essential that you acquire the computer in the company name and by using funds from the company bank account. The difference in this scenario is that a limited company is a separate legal entity to the individual, whereas a sole trade business is simply you trading as an individual.

The expert was Martin Hesketh, managing director of Brookson, a contractor accountancy specialist.