When an entrepreneur purchases something with a heftier price tag, you will sometimes hear the word ‘investment’ and perhaps even the exotic word ‘depreciation’.
We are then talking about an entrepreneur who purchases something for his business where the price tag is already a bit higher on the one hand and, on the other, it concerns something that will last longer.
Something like this can (sometimes, sometimes not) be labelled investment. We will first go over the theory surrounding an investment and its depreciations, then clarify with a calculation example!
Dexxter tip! ✅
If you indicate that a purchase is an investment, Dexxter automatically depreciates the purchase, handy!
What is a depreciation?
1️⃣ Either you have a standard purchase that you stopped directly in your expenses.
Actually, this includes all purchases that are not ‘investments’. You can enter these in 1 time. So your costs will increase by the purchase amount in 1 lump sum.
What are some examples of standard purchases? Trade goods, small office equipment, social security contributions, your monthly electricity bill… most purchases fall under this heading. The impact on your accounts is also always the same: the purchase price increases your costs by the same amount.
2️⃣ Either you have an investment with depreciations.
Here, the purchase does not immediately go into the cost in accounts, but we are going to have to spread the purchase over several years. You still pay the full amount to your supplier at the time of purchase, only the cost is going to be spread over several years.
Because you have purchased something with a certain value (think 250 euros or more) and that will last longer than one year (an estimate at the time of purchase, of course) , you are talking about an investment, which must therefore be written off.
From what amount is a purchase an investment?
By now you already know that there are many ‘grey areas’ in accounting. So nowhere is there a legal definition of the point at which a purchase should be considered an ‘investment’.
Tip from an accountant
A good indication of an investment is a purchase value of €250 per item, but this number is also no more than an indication.
For small purchases, there is tolerance with the taxman: you obviously don’t have to consider a €20 perforator that might last 10 years as an investment! Although it would be allowed of course, booking a small-value purchase as an investment will never be a problem.
So every year we will add a piece of the purchase (= investment) as a cost in accounts (= depreciation). So depreciation is simply letting a purchase come into your accounts at a staggered cost.
Depreciation: a calculation example 🧮
Suppose you buy a new, spacious desk. That means a fairly hefty purchase from 1,500 euros excluding vAT. Slightly more expensive equipment, but your secondary occupation is running like clockwork and your equipment should follow! The new purchase goes into your desk space that you have provided for your self-employed activities.
Obviously, you will have had to make an immediate payment of 1,500 euros + vAT, but that impact on your bank account will not be the same as the impact on your accounts. We will spread the impact of the purchases over several years in your accounts, precisely because your office will also provide services to your company for several years. So here we will have to depreciate: spread the purchase cost of the desk over several years in your accounts.
That means we have to make an estimate of how many years your desk will last, obviously an almost impossible estimate. Fortunately, the legislator helps by giving some advice when it comes to guideline periods.
What impact does the depreciation period have on my accounts?
To complete our example from above, you choose to depreciate your agency over a 10-year term, in accordance with the guidelines provided by the tax authorities.
You have immediately paid 1,500 euros excluding vAT in the shop. So the financial impact is there immediately on your bank account, but we have to spread the impact on your figures in the accounts over 10 years.
That means that we spread the purchase value excluding vAT over 10 years, so there will be 150 euros cost from your accounts every year. Spread over the next 10 years, this way the purchases of your desk will gradually enter the figures in your accounts.
So what about vAT?
What if I am subject to VAT?
If you are subject to VAT, you can of course recover the paid VAT via your vAT declaration. In our example, you bought a desk from EUR 1,500 excluding VAT, on which you therefore paid an additional 21% VAT in the shop, being EUR 315.
Obviously, we don’t have to include the paid VAT in the depreciations, because you will recover that part of the paid VAT quite quickly via your next vAT declaration. Including it both in the depreciations and recovering it via your next vAT declaration would then have a double impact, which is obviously not allowed.
And what if I am not subject to VAT?
If you are not subject to VAT, you will not be able to recover the piece of extra paid VAT via a vAT declaration. In such a case, the vAT paid is indeed a piece of your depreciation.
In our example, suppose you are a non-VAT subject to VAT, you will be allowed to write off 1,500 euros excluding VAT + 315 euros paid VAT. So that makes your new desk worth 1,815 euros as an investment in your accounts, which you will then depreciate over the next 10 years.
Rather watch than read? 🍿
Here you can find a step-by-step plan on how to book an investment into Dexxter.
This is the roadmap you can view in Dexxter as an exempted from VAT when it comes to an investment and depreciation.
Of course, in a subject to VAT profile, you will see a different video stated, as Dexxter fully adapts. You are not alone as a (start-up) self-employed person, let that be clear!
Accounting program Dexxter makes it easy for you! 💪
In Dexxter, you can easily indicate that a purchase is an investment. After that, you don’t have to do anything at all! Dexxter will then automatically spread the purchases and add the costs to your accounting each year.
Would you like to discover more about your accounting, costs, turnover, taxes…? We offer two super handy quick courses to get you off to a good start as a start-up. These quick courses are split between entrepreneurs exempted from VAT and entrepreneurs subject to VAT.
At Dexxter we also always offer a 30-day free trial period, so you can quietly discover all our functionalities already, including entering an investment, depreciations and the depreciation table! Start your free trial today.
Do you still have questions specifically? That’s perfectly normal, many from your fellow entrepreneurs for that matter!
This is precisely why we also built a community in Dexxter. That’s a place in the application where entrepreneurs can ask questions and get answers from other entrepreneurs, sparring together to come up with solutions.
We also have our own custom-generated tax timeline. This allows you to see all tax deadlines relevant to your vAT type. Our learning centre is also at your disposal, brimming with content, videos, courses, etc.
