Capital Expenditure: Timing is Key

A business may buy, upgrade, and maintain physical assets to be used for the purpose of its trade and this might include the purchase of property, machinery, buildings, or technology. Generally speaking, businesses don’t get a deduction against profits for these expenses, but they can claim tax relief via capital allowances.

Earning some tax back when you invest in improving your business is a great incentive but what you can claim often depends on one thing: timing.

AIA is changing
Firstly, it’s important to know that, at the moment, the Annual Investment Allowance (AIA) is set to reduce from £1 million to £200,000 from 1^st April 2023. If you’re thinking about making significant expenditure, you might want to do so before the rate change. But be careful – if your accounting period spans the date of the change, transitional rules will apply to restrict the total allowances available.

Check your delivery dates
Businesses can receive capital allowances on both cash and hire purchases. Where cash purchases are concerned, allowances can be claimed straight away but assets acquired on hire purchase are slightly different - relief can only be claimed from the point you start using the equipment within your business.

Many companies will make the mistake of placing a hire purchase order a few days before the end of their accounting year, thinking they can claim from the point of order. However, if the equipment is not delivered and brought into use by the year end, allowances cannot be claimed until the next period.

Know your payment terms
As well as considering delivery dates, you’ll also need to understand your payment terms. Capital expenditure is deemed to have been made when there is an unconditional obligation to pay for an asset, so if you have staggered payment terms or any special arrangements with regard to payment, you’ll need to check the position carefully.

If you know you need to make use of a relief in a certain period, double check with your supplier to see if you can agree different payment terms, or a quicker delivery.

Super Deduction is ending
The ‘Super Deduction’ set out by the Chancellor in order to light a fire under UK growth post-pandemic is set to end in March 2023. We’ve previously covered the best way to make use of this generous scheme, which you can see details of here.

This is another time factor you need to consider. If you want to make us of this allowance, make sure all of your purchases are bought, delivered and paid for within the correct accounting period.

Plan your expenditures
If you’re planning to make significant investments in your business, it’s important to consider your timing. The team at Monahans can help to advise you on the best course of action, ensuring you maximise the relief you can claim.

For information and advice, please get in touch.

Stephanie Hurst