The timing of capital expenditure is significant because it determines the period for which a business can claim capital allowances. The general rule is that capital expenditure is incurred when there is an unconditional obligation to make a payment. In most cases HMRC consider this obligation to arise when the asset is delivered.

There are some notable exceptions to this rule:

Where there is a gap of more than four months between the date on which the obligation to pay becomes unconditional (delivery) and the date on which payment is required to be made.

In such cases, the expenditure is not incurred until the date on which payments is required to be made.

When assets are acquired or financed through Hire Purchase (HP) arrangements.

In such cases, the point of capital expenditure is determined by the date the asset starts being used for qualifying business activities, rather than the date of delivery.

There are other complexities, for example with assets built under milestone contracts, but the general delivery rule prevails in the majority of cases.

It’s important to dispel a common misconception – the mere act of signing a contract, placing an order, or paying a deposit does not typically constitute an unconditional obligation in the eyes of HMRC. This clarification is crucial for businesses engaging in pre year-end planning discussions concerning capital allowances.

To ensure that businesses have ample time to order and receive assets, it’s advisable to initiate these conversations well in advance of the year-end. This proactive approach enables businesses to manage asset procurement and delivery efficiently.

Understanding the timing of expenditure for capital allowances is essential for effective financial planning and tax optimisation. These principles remain as relevant today as they have ever been in the ever-evolving landscape of finance and taxation.

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