FreeAgent Update - Improved Depreciation and more...
The accounting engine under the hood of FreeAgent took another big step forward this week, with the introduction of a much better model for Depreciation.
We're seriously thinking of a new motto: "We're boring, so you don't have to be"!
But first - more Friendliness!
We're really please to announce that R&R Accountancy, based in the astonishing 'Gherkin' in the City of London, are now FreeAgent-Friendly.
R&R Accountancy are dedicated to providing the complete financial solution to contractors, predominantly in the IT industry.
Get in touch with Antony Robb at R&R to find out more.
Depreciation for Dummies
..and by 'Dummies' we mean 'us until quite recently'.
As you may be aware, you don't get very useful accounts if you claim a big purchase of something as an expense in the year you buy it, since it's something you're going to use over several years.
When it comes to calculating the tax owed on your profit, unfortunately, a different-but-equivalent thing called 'Capital Allowances' come into play.
Previously in FreeAgent, to keep things simple, we assumed that the depreciation for any given year was the same as the UK Capital Allowances for that year. When you calculate your taxes you ignore your depreciation expense and add in the capital allowances instead. So if you assume they're the same, you don't need to do anything.
The problem with that is that the rules for Capital Allowances keep changing, and our valued Universal users certainly don't want to be stuck with quaint UK tax rules for their accounts.
So we've now added a 'proper' depreciation model and also modelled the UK Capital Allowances for tax purposes, doing the appropriate subtraction and addition accordingly.
Technically speaking, we model straight-line depreciation over 2,3,4,5 and 7 years (actually 50%, 33.33%, 25%, 20% and 15% per year, and yes for the 7-year case the last value is actually 10%). Let us know if you, or your accountant, want something different.
Here's how it affects what you see in FreeAgent, all explained below:
- A revised Capital Assets page
- Setting Asset Life
- UK Accounts: Revised Self Employment and Corporation Tax calculations
- UK Accounts: Opening Capital Asset Pool and Losses Brought Forward
Revised Capital Assets Page
Under Accounting > Capital Assets you can view individual purchase and depreciation lines for each of your capital assets.
You can also directly access the pages to edit the original purchase entries.
Setting Asset Life
The time over which each capital asset is depreciated can be set when you create or edit it via a new 'Asset Life' field.
The default asset life is set as 3 years - this is pretty standard for computer equipment but you may want discuss with your accountant other kinds of assets.
UK Accounts: Revised Self Employment and Corporation Tax Calculations
Now that we better support depreciation, we now also correctly handle UK capital allowances as part of the Self Employment income tax calculation or the Corporation Tax calculation (depending on company type and varying by year).
You can view the details of those calculations on the respective tax return pages.
UK Accounts: Opening Capital Asset Pool and Losses Brought Forward
You can now enter opening balances for capital asset pools on the Settings > Opening Balances page, and also include any opening Tax Losses Brought Forward.
UK Accounts: Revised Advisory Mileage Fuel Rates
We've added these new rates into FreeAgent, which will apply to all journeys on or after 1 June.
'No Unit' Invoice Items
You can now select '-no unit-' as an invoice item type. As you'd expect, the 'Quantity' column on the invoice will just show the numerical quantity without any units.
Category Sub-totals on the 'Profit and Loss'
A subtotal value for each P&L category is now displayed. Enjoy.
Them Pesky Varmints
- UK Accounts: Fixed a VAT rounding error which caused Mileage expenses to produce tiny discrepancies in the Trial Balance.
- Fixed a bug which could occasionally cause the overview page not to appear, with a 'FreeAgent is not Happy' message. Apologies to the small handful of you who experienced that one.
- Video: an introduction to VAT by HMRC
- You deserve better: why you need to break up with your spreadsheet
- Simple ways to save yourself future Self Assessment stress
- Making Tax Digital consultation response published
- Not feeling (a) fine? You might have a ‘reasonable excuse’ for not completing your tax return