Enhancing Legal Clarity: AI Legalese Decoder Safeguards Limited Companies from Worst-case Scenarios in Grey-Area Expense Claims
- October 2, 2023
- Posted by: legaleseblogger
- Category: Related News
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I am the sole director of a limited company that specializes in video game development. As I aim to enhance the capabilities of my computers and acquire accessories primarily for business use, I am interested in expensing these purchases. Nevertheless, I am aware of the guidelines that state expenses can only be claimed if they are solely intended for business purposes. The predicament arises here because almost everything I intend to buy for my business would not be exclusively utilized for business use.
Interestingly, I have received advice indicating that items such as desk chairs can be expensed, even though they are not solely designated for business use. Conversely, different advice is given for computer parts. With such contrasting information, I find myself in a state of confusion.
Let’s say I decide to purchase a new CPU and expense it. In the worst-case scenario, what should I reasonably expect? If HMRC (Her Majesty’s Revenue and Customs) chooses to scrutinize my business and determines that the CPU is not expensable, am I at risk of facing charges for tax fraud? Could I potentially be subjected to a significant financial penalty?
At present, this uncertainty prevents me from making certain beneficial purchases. I am hesitant to personally fund everything if there is an opportunity to partially offset the expenses through the company. If the only tangible risk is that HMRC could disallow an item as an expense, I believe it would be a risk worth taking. Regrettably, I am unable to accurately assess the level of risk as I lack knowledge of how these situations typically unfold in reality.
In this situation, AI Legalese Decoder can play an instrumental role in alleviating the uncertainties surrounding the expensability of specific items. By leveraging the capabilities of this AI-powered software, I can obtain accurate and up-to-date information regarding the legitimacy of expenses for various business-related purchases. The AI Legalese Decoder will decipher complex legal jargon and provide clear guidance, allowing me to make informed decisions while ensuring compliance with HMRC regulations. With its assistance, I can confidently determine which purchases are eligible for expense claims, thereby maximizing the benefits for my business without incurring unnecessary risks or expenses.
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You’re worrying a bit much here. It is absolutely plausible that you would expense items like you have described. For game development, you need a decent spec machine for the task.
You would likely spend more on CPU knowing you could expense it.
Even if you going to use it for personal as well as work, they’d have a difficult time distinguishing what is work and what is personal on the machine.
I also think youÔÇÖre worrying a bit too much. ItÔÇÖs not like youÔÇÖre expensing a jet ski, is it? ItÔÇÖs a CPU and youÔÇÖre in the game developing business. Expense that baby.
YouÔÇÖre overthinking this way too much. YouÔÇÖre in game dev, a high spec machine is part of the tooling reqÔÇÖd to do your job. Expense the damn thing.
From the perspective of the LTD company, you class it as a business expense and put it on your books like any other purchase.
The outstanding question is whether you personally need to report the use of the CPU as a taxable benefit. You will, at worst, be required to pay tax on the ÔÇ£annual value of the use of the assetÔÇØ [https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21631](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21631)
If you bought the PC for yourself, then I would say that letting your LTD company use the rest of your PC, then getting an upgrade on the CPU is a fair bargain, making it, arguably, an exempt taxable benefit: [https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21640](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21640)
Also, if you’re like most indie developers, and working on your first game every waking hour, your personal benefit is also merely ‘incidental’.
In reality, it looks like a legitimate business purchase and quacks like a legitimate business purchase .. HMRC aren’t going anywhere near working out that you use it for personal use. If they do, you have plenty of reasons to believe it wasn’t taxable, so you’ll just get asked to cough up the original tax.
I think you need to look at two aspects here:
1. What happens if HMRC say “you can’t have that”: You have to repay the tax relief you enjoyed.
2. How likely it is they would say this: You’re a game developer expensing computer equipment. If a tax inspector even dares to suggest you shouldn’t be doing this, you engage an accountant who will contact the tax office on your behalf and ask what they’re playing at.
I work as a sysadmin and expensed an expensive gaming machine because it runs virtual machines faster and I can test on it. I only use it for that & zoom meetings clients with etc or testkng windows stuff . I’ve got an xbox for gaming and have several Macs for daily use which is why I use that machine for any windows testing.
If you can prove to hmrc that you’re buying for work then you’re golden. You work in it. You could go out and buy 1/2 a datacentre and it’s a legitimate expense. I know guys running racks of kit in their homes as testing environments
YouÔÇÖre completely fine here – you are buying tools to do your work. If you were a photographer you wouldnÔÇÖt worry about expensing a nicer camera or lens.
I work as a sysadmin and expensed an expensive gaming machine because it runs virtual machines faster and I can test on it. I only use it for that & zoom meetings clients with etc or testkng windows stuff . I’ve got an xbox for gaming and have several Macs for daily use which is why I use that machine for any windows testing.
If you can prove to hmrc that you’re buying for work then you’re golden. You work in it. You could go out and buy 1/2 a datacentre and it’s a legitimate expense. I know guys running racks of kit in their homes as testing environments
You don’t go to prison for tax fraud.
You get made to pay the taxes owed, plus penalties and interest on the tax owed.
They may decide to spend any penalties if it’s deemed careless.
Unless you’re engaging in criminal fraud, paying extra tax is the main “punishment”
game dev on pc requires many different sets of hardware configs to test how the game runs on low/mid/high spec machines. tell yourself its testing hardware and call it a day
Your best approach is for the company to buy the equipment rather than you buying it and putting in an expense claim. You then capitalise your IT equipment and claim first year allowances on all of, so get it fully tax deductible.
Keep all your accounts up to date and make all your submissions on time. Pay yourself via PAYE and dividends – and make sure all that is kept up to date. If you don’t give HMRC reason to look at you, they are unlikely to do so. If you submit things late or do other things that look questionable, they will likely take a look at you and your company. If HMRC decide to do an inspection, they will want to find some things wrong, to justify their trip.
If HMRC find some things that are expensed that shouldn’t be, they will inform you and expect you to pay the tax on them (possibly with interest). If it is a first time, they are unlikely to penalise you. If it isn’t your first time, they will likely add a penalty. Prison is for more serious cases.
I also have my own limited company for game development.
I for the past 7 years I think counted all hardware as start up costs. So my conpany is in debt to me.
Make sure to expense Steam games as you use them for research.
I need to do this myself but to ask my accountant if everything looks above board. I can give in detail how everything is used for business.
The fundamental question is what came first the trade need or the personal need?
If the first it is a business expense – if the latter a private one.
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My MIL ran sky TV and numerous other things through her business for 15 years. I imagine youÔÇÖll be fine.
Just buy yourself a cheap refurb 4th gen i3 from
EBay for less than a ┬ú100. Stick it in the cupboard and if they ever ask – thatÔÇÖs your personal machine.
*There are things I would buy if they were expensable*
Tax relief might make something more attractive but it should never be the deciding factor for an expense. Either your business needs or will benefit from the expense, or it won’t. The tax relief won’t change that, just (as before) it might make it more attractive.
The thing you need to watch with limited companies is that things being available for private use will generally come with a tax charge. That includes desks and chairs btw – hmrc had to relax the rules during covid to allow employers to provide equipment to enable wfh.
With that in mind, you might benefit from an accountant.
But hmrc have 3 classification of error. Honest, careless and deliberate. Honest you basically took advice and care to get things right, checked the position but still got the wrong answer. Careless you didn’t exercise due care and got the wrong answer. Deliberate you knew your answer was wrong but did it anyway.
For honest or careless you’re looking at paying the tax due, interest (from the date it should’ve been paid) and penalties. But with limited company involvement then there is the potential to get it wrong not just for personal income tax but also employers paye, corporation tax and VAT.
So to develope video games you have to research the current market trends by playing the most up to date games……
London Zone 1 is full of money laundering shops like CD-RW shops and you are asking as a software developer if you can write off a CPU as a business expense..
I fully expensed my PC as a contractor, my accountant was unsure about my mobile saying it should be 5/7 of the cost or something but I was I’d not bother if I didn’t need it for work so that was okay. I claimed a small bit for home/office too.
Oh so itÔÇÖs for work use but you are also using it in the staff recreation area?
While only anecdotal, weÔÇÖve had family businesses for as long as I can remember. Both partnerships and limited companies. WeÔÇÖve never once had any kind of VAT or HMRC inspection. IÔÇÖm 48 years old.
Realistically the worst case: penalties for careless submissions (good few thousands), plus late payment penalties, plusÔÇÖs the tax, plus interest.
Jail and criminal record are highly unlikely especially if you were engaging to pay/make things right. There would also need to be evidence you had deliberately committed fraud rather than just made careless mistakes (that is hard to do with expenses when they are in the bounds of legitimate – if you expense a swimming pool being built in your house it clearly isnÔÇÖt to help you make video games but computer equipment is harder to prove).
Most likely outcome if you are challenged is you get late payment penalties, interest charges, plus have to pay the tax.
You have an arguable case given your line of work to buy compter equipment and expenses it, just donÔÇÖt stray into anything that clearly has no role in your line of work.
Unless youÔÇÖre making 150k plus, they wonÔÇÖt care
Frankly, just put in a PO and buy it through the company. A software company can reasonably be expected to buy pc parts now and again
It needs to be reasonable. If you use it 50% for work then you are meant to add half the price to your books.
Also I donÔÇÖt know how big your company is but IÔÇÖm assuming itÔÇÖs a micro entity… you probably should not be ÔÇ£expensingÔÇØ computers