The point at which expenditure is “deemed” to have been incurred can bring an unexpected cash boost for clients at their tax year end. We set out the key points to consider for determining how to bring forwards the entitlement to claim Capital Allowances.
It is possible for expenditure to be treated as being incurred for tax purposes long before a payment is due. The legislation makes the provision for where a contract gives rise to an unconditional obligation to pay, no more than four months after which the obligation to pay becomes unconditional.
Therefore, if you take at face value that the timing of when you can claim Capital Allowances is in line with the entries shown on your fixed asset ledger you could be missing out on valuable tax relief.
In the case of a building contract, interim payment certificates are often raised on a rolling monthly basis from the start of the project to its conclusion. The standard payment terms are often 30 days and so if your tax year end is 31 December 2015 and an interim payment is certified before then, even though it is shown as paid in January of the next period, Capital Allowances can be claimed on that payment in the earlier period.
The same principle applies to pre-payment of goods, in that often a piece of equipment is paid for in advance or a deposit paid. The ability to then claim Capital Allowances will depend on the terms of the order and the underlying contract, but providing the ownership has passed and there is an “unconditional offer”, then Capital Allowances could be claimed at that point rather than when the delivery is made.
- When reviewing construction payments, consider when expenditure is incurred to bring benefit of claiming Capital Allowances forwards
- Check contracts for the treatment of pre-order or deposit payments