What are fixed assets?
Fixed assets are items a business owns and uses over several years to run its operations, such as property, machinery, vehicles and computers.
What fixed assets means
Fixed assets, also called non-current assets, are bought to be used rather than sold. A van, a coffee machine, a laptop or a building helps the business earn money for years. They appear on the balance sheet at cost less accumulated depreciation, which is known as net book value.
They come in two kinds. Tangible fixed assets are physical: property, plant, machinery, vehicles, fixtures and computers. Intangible fixed assets have no physical form, such as purchased goodwill, trademarks and software, and are written down through amortisation.
When to treat something as a fixed asset
Small items are usually just expensed. Many businesses set a capitalisation threshold, such as £500 or £1,000: anything below it goes straight to the profit and loss account even if it lasts several years. The threshold should be applied consistently.
Example
A photography studio's fixed asset register at year end:
| Asset | Cost | Depreciation to date | Net book value |
|---|---|---|---|
| Cameras and lenses | £14,000 | (£7,000) | £7,000 |
| Lighting kit | £6,000 | (£2,000) | £4,000 |
| Studio fit-out | £20,000 | (£4,000) | £16,000 |
| Total | £40,000 | (£13,000) | £27,000 |
The balance sheet shows fixed assets of £27,000. For tax, most of the £40,000 will already have been relieved through the Annual Investment Allowance in the years of purchase.
Why it matters for your business
Treating a purchase as a fixed asset rather than an expense changes profit in the year of purchase and later years. Keeping a fixed asset register, with dates, costs and what has been claimed for tax, makes it easy to prepare accounts, work out capital allowances and deal with disposals. When an asset is sold, any difference between the sale price and its net book value is a profit or loss in the accounts, and there may be a balancing charge for tax.
Selling or scrapping a fixed asset
When a fixed asset is sold, scrapped or given away, it is removed from the register. If a van with a net book value of £8,000 is sold for £10,000, the accounts show a £2,000 profit on disposal. For tax, the sale proceeds are set against the capital allowances pool, and if the van was fully relieved through the Annual Investment Allowance, the proceeds create a balancing charge that is taxed in that year.
Common questions
Usually, if it costs more than your capitalisation threshold and will be used for more than a year. It would be depreciated over about three years in the accounts. For tax, it normally qualifies for the Annual Investment Allowance, giving full relief in the year of purchase.
Fixed assets are held for long-term use in the business and are not intended for sale. Current assets, such as stock, debtors and cash, are expected to be turned into cash or used up within a year.