UK Capitalise labour costs on new IT ?

[Jay2]

Evening all

our company will be moving to an IT Cloud system and another company are currently building the servers etc. . The costs will be quite a lot (est £40k?). And will include quite a lot of labour costs .
all the computer hardware will be part of our fixed assets meaning the costs can be spread out over 3 year by means of depreciation .
Can I also include the labour costs in this ?

thanks for any help

jay

 

[Kat Maple]

Hi Jay

The labor costs of the vendor company to implement the system can be capitalized and depreciated. But any costs of their training your people to use the system cannot be capitalized and must be expensed.

Regards

Kat

 

[Jay2]

There be no training , we will never own the asset , we just get a monthly charge for 5 year for them hosting all our IT in the cloud , so we pay £x amount each month for 5 year for this service . But initially they will invoice us as a larger amount for them building and developing the “cloud” server etc

thanks for your help by the way

 

[Jay2]

Hi Jay

The labor costs of the vendor company to implement the system can be capitalized and depreciated. But any costs of their training your people to use the system cannot be capitalized and must be expensed.

Regards

Kat

what happens if we made order mid february with an estimated cost , as of end april work is ongoing and no invoice, work expected to complete late june possibly ?
am i ok to just put this into 22/23 accounts when we receive the invoice ? particularly If i can capitalise the labour

sorry, never been through this process before

 

[Kat Maple]

Hi Jay

It depends on the terms of the contract. If you have a legal commitment at time of signing then you have a liability to record at that time plus the related asset, which is “Asset construction in process” until it is placed in service. When you pay the invoices you debit the liability for the amount paid. When system is placed in service you cr the asset construction in process acct and debit the System Asset acct and that is also start date for depreciation.

Question
In your first post you said the computer hardware will be “part of our fixed assets”but in later post you said “we will never own the asset.”
Can you clarify because all I have written so far was based on you owning the assets.

Regards

Kat

 

[Jay2]

Only an order has been raised in Feb to give go ahead for the initial build , this build is ongoing now and will end late June apparently , most of the work is April and May I have been told. We will receive invoice when work is done late June . Approx £15k.
Apologies I got it wrong earlier , we won’t own any asset , they build it particularly for us and we will pay the monthly costs like a lease I guess and we get all the benefits , it is specifically for our use . We will use 5 year then I guess review it
Sorry for confusion
Jay

 

[Kat Maple]

Hi Jay

OK then disregard all I had written above. And so now I suggest that you read this

https://assets.kpmg/content/dam/kpmg/au/pdf/2021/21ru-005-cloud-computing-arrangement-costs.pdf

Regards,

Kat

 

[Jay2]

Hi Jay

OK then disregard all I had written above. And so now I suggest that you read this

https://assets.kpmg/content/dam/kpmg/au/pdf/2021/21ru-005-cloud-computing-arrangement-costs.pdf

Regards,

Kat

thanks kay

have read few articles today, it seems bit of grey area , we do have control and sole benefits as it will host our own servers

the order was placed feb and work started late march - ongoing until june , should then receive an invoice late june/early july, unsure if that complicates matters further or not