Iphone app business help

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David@accountingsource
David@accountingsource Registered Posts: 12 New contributor 🐸
Hi,

A friend of mine has recently started a business (LTD) part time along side his current full time work. And I said I would help him with his accounts, as it would be good practice for myself to complete Companies return, Tax etc.

He has invested a lot of time to make an Iphone application, the sole product of his business. He has had interested from a large international company based in Italy for his designs and they have now given him some data to test with the App the income for the test is around 5k. He has invested no cash in the company apart from minimal start up costs and IP protection application.

Whilst I have plenty of time to complete the accounts, I would like to understand some basic principles.

Q1. How do I account for the time he has invested in the company? (DR Expenses Cr Capital Account)

Q2. What bases shall I use to quantify his time? (Use his current hourly rate in his full time employment to quantify his time)

Q3. The Iphone application itself is an asset to the company, however I would not know how to calculate the value of the asset.


Any help or tips would be greatly appreciated, my first LTD business as an MIP.

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  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    First thoughts..

    1. You don't.
    2. N/A given my answer to 1.
    3. Historical cost. e.g. cost of protection application.
  • David@accountingsource
    David@accountingsource Registered Posts: 12 New contributor 🐸
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    Many thanks for your help.

    So he would have been better off to sub contract the development of his App, so he could then charge it as an expense.
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Many thanks for your help.

    So he would have been better off to sub contract the development of his App, so he could then charge it as an expense.

    Only because it would be an actual expense, which he would have to pay for.

    So not exactly better off?
  • David@accountingsource
    David@accountingsource Registered Posts: 12 New contributor 🐸
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    PGM wrote: »
    Only because it would be an actual expense, which he would have to pay for.

    So not exactly better off?

    True. Many thanks
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    You may want to look at whether the intellectual property (IP) is better off being owned by him personally and 'leasing' that knowledge to the company in terms of revenue generated, or whether it's better if the IP is owed by the Ltd. Might have big tax considerations down the line
  • David@accountingsource
    David@accountingsource Registered Posts: 12 New contributor 🐸
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    Monsoon wrote: »
    You may want to look at whether the intellectual property (IP) is better off being owned by him personally and 'leasing' that knowledge to the company in terms of revenue generated, or whether it's better if the IP is owed by the Ltd. Might have big tax considerations down the line

    Currently the IP is in his name, however it is just an IP application (granted) at the moment.
    I have not even considered the fact he could Lease the IP to the company, and not sure how to value this. Would the costs in setting up the IP be an expense to the company?

    I starting to think I have bit of more then I can chew :/ for my first LTD company
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Currently the IP is in his name, however it is just an IP application (granted) at the moment.
    I have not even considered the fact he could Lease the IP to the company, and not sure how to value this. Would the costs in setting up the IP be an expense to the company?

    I starting to think I have bit of more then I can chew :/ for my first LTD company

    Monsoon, what would be the tax advantages of this? Too long since I studies tax!
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    PGM wrote: »
    Monsoon, what would be the tax advantages of this? Too long since I studies tax!

    Dunno otherwise I would have been more helpful! :lol: Its something I am looking into at the moment.

    If you ever sell the IP (which might not be as relevant with an iPhone app) then CGT + Entrepreneurs relief should be cheaper than corporation tax. That's my thinking....

    Leasing it for a fee would reduce CT year on year, but only works if the director has free tax allowances e.g. Ltd Co is sole source of income.
  • David@accountingsource
    David@accountingsource Registered Posts: 12 New contributor 🐸
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    Another quick question on the topic above,
    What would be in his capital accounts be if he has not invested any capital at start up just development time. Zero?
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Another quick question on the topic above,
    What would be in his capital accounts be if he has not invested any capital at start up just development time. Zero?

    Zero. Unless theres any assets transfered into the company at start up?
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    Another quick question on the topic above,
    What would be in his capital accounts be if he has not invested any capital at start up just development time. Zero?

    Yep. Note in a Ltd Co he does not have a capital account the same way a sole trader or partner would. In the bottom of the balance sheet you will have Share Capital, being the number of (usually) £1 shares that he subscribed to, as registered at CoHo. That is a Cr. The Dr will either be to the Ltd Co bank if he actually paid for them, or to his Directors Loan Account if he didn't (which is either a current asset or current liability depending on whether it's in debit or credit!).

    As Dean says, all the time etc that he has put into it doesn't come into the accounts; rather it is reflected in the fees that it enables the company to generate and the resulting increased value of the shares
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