How to record the purchase of a capital asset using multiple transactions
This article explains how to record the purchase of a capital asset in FreeAgent if you’ve paid for it using multiple bank transactions.
If you paid for a capital asset using multiple transactions, follow the steps below to add a bill for the purchase and then explain the bank transactions once they’ve been imported into your FreeAgent account via a bank feed or uploaded from a bank statement.
Please note that you’ll need level 6 access or above to your FreeAgent account to follow the steps below. You’ll also need to ensure that the person or organisation that you’ll be paying for the asset is set up as a contact in FreeAgent before you create a bill for them.
If you paid for the asset using a single bank transaction, find out how to record the purchase of a capital asset.
1. Add a bill
First, you’ll need to add a bill for the total purchase price of the asset.
To do this, navigate to the 'Bills' tab at the top of the screen, select ‘Add New Bill’ and follow the steps for adding a bill in FreeAgent.
Enter the relevant details for the purchase in the 'Bill Contents' section, including selecting the relevant asset purchase category from the bottom of the ‘Spending Category’ drop-down menu. You can create custom categories if you need to. If you’re unsure which category to select, please ask your accountant.
Choose how many years the asset will be useful to your business from the ‘Asset Life’ drop-down menu.
Make sure that you enter the full amount paid for the asset in the ‘Total Price’ field.
Once you’ve entered all of the relevant information for the asset purchase, select ‘Save and Review’ to complete the process.
A record of the bill being created will appear in your Audit Trail report.
Viewing the asset in your capital asset register
Once you’ve created the bill, the asset will be added to your capital asset register in FreeAgent. For information on viewing the capital asset in FreeAgent, please see this article.
FreeAgent will automatically claim the Annual Investment Allowance on your asset unless you or your accountant sets the tax treatment differently. For example, you may want to claim a different allowance such as the Writing Down Allowance.
2. Explaining the money paid out of your bank account
Once the relevant bank transactions for the purchase of the capital asset have been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you’ll need to explain them using the appropriate ‘Type’ and ‘Category’ as detailed below.
Navigate to the ‘Banking’ tab at the top of the screen, select ‘Bank Accounts’ from the drop-down menu and choose the relevant bank account from the list.
Select the first transaction that you’d like to explain.
Select ‘Bill Payment’ from the ‘Type’ drop-down menu and select the bill created for the capital asset purchase from the ‘Bill’ drop-down menu.
Select ‘Explain Transaction’ to complete the process.
Repeat this process for each of the transactions related to the purchase of the capital asset, including any initial deposits paid.
A record of the bank transactions being explained will appear in your Audit Trail report.
What happens next?
Please note that if you’re on the VAT Flat Rate Scheme and the total value of the capital asset purchase is £2,000 or more, the purchase will appear on your VAT return. This will apply even if the value of the individual bank transactions is less than £2,000.
Cash basis accounting
FreeAgent will automatically claim the Annual Investment Allowance (AIA) on your asset. Therefore, if the asset purchase doesn’t qualify for the AIA, you may need to manually override this amount on box 23 of your Self Assessment tax return if you’re using the short version of the ‘Self Employment’ page, or box 49 if you’re using the long version. If you’re unsure whether the purchase qualifies for the AIA, speak to your accountant.