Capital asset essentials for accountants
How to record a capital asset purchase
Alternatively, you can record the capital asset purchase by creating journal entries. Please note that capital assets that are recorded as journal entries will not appear in your client’s ‘Capital Assets’ report and FreeAgent will not calculate any depreciation on the asset. Therefore, you would need to post additional journal entries for depreciation each year if required.
If your client purchases a capital asset that doesn’t quite fit into FreeAgent’s existing capital asset types, you can create a custom capital asset type.
Useful life of an asset
When you categorise a bill, out-of-pocket expense or bank transaction as a capital asset purchase in FreeAgent, you’ll need to select the asset's useful life. If the asset doesn’t depreciate, find out how to record a capital asset that doesn’t depreciate.
If the asset’s useful life will be longer than seven years, find out how to record a capital asset with a long useful life.
Assets bought on hire purchase
If your client purchased the capital asset using a hire purchase (HP) agreement, enter the date that the hire purchase agreement ends in the ‘Due On’ field and tick the ‘Hire purchase’ checkbox in the ‘Bill Details’ section when adding a bill.
Please note that this only applies to assets that your client is effectively buying, not to those that they’re renting or to a scenario such as hiring a car from a car rental company.
The amount that your client is due to pay for the bill will automatically be posted to the hire purchase liability category (code ‘793 - Hire Purchase Liability > 1 Year in FreeAgent: [X]' where X is the bill reference number).
Please note that the liability account will record the balance as due to be repaid in more than one year. If you need to show any of the liability as due to be repaid in less than one year, for example if your client has a limited company account type and need this to be reflected on their Final Accounts report, you’ll need to create the relevant journal entries, typically between accounts ‘794’ and ‘795’.
You might find the following articles useful on how to record the purchase of a capital asset on hire purchase:
- How to record an asset bought on hire purchase when using accruals basis accounting
- How to record an asset bought on hire purchase when using cash basis accounting
- How to record an asset bought on hire purchase using part exchange (old asset included in capital asset register)
- How to record an asset bought on hire purchase using part exchange (old asset not included in capital asset register)
You may encounter one of the following scenarios where you need to record a capital asset in your client’s FreeAgent account. Select the relevant link below for more details:
- How to record the purchase of a capital asset before your business’s start date
- How to record the purchase of a capital asset between your business’s start date and FreeAgent start date
- How to record the purchase of a capital asset for business and personal use
- How to record the purchase of a capital asset using multiple transactions
- How to record the purchase of multiple capital assets with one bank transaction if you’re on the VAT Flat Rate Scheme
How capital allowances work in FreeAgent
FreeAgent’s capital allowances calculation is available for assets purchased within an accounting year ending on or after 23rd July 2020 in UK limited company account types.
It works by inviting you to select the relevant tax treatment for the asset from the drop-down menu.
If your client has a UK sole trader, partnership or LLP FreeAgent account type, FreeAgent will treat all capital assets as 100% allowable automatically in their Self Assessment tax calculations.
Please note that it's not currently possible to change the tax treatment of capital assets in FreeAgent accounts that are not UK limited company accounts, but you'll be able to adjust the Annual Investment Allowance figure on the Self Assessment tax return for a sole trader if required.
Find out more about how to use FreeAgent’s capital allowances calculation.
How to dispose of a capital asset
Selling an asset
- How to sell a capital asset when using accruals basis accounting
- How to sell a capital asset when using cash basis accounting
- How to create a VAT invoice for the disposal of a capital asset