What is the relevant date for Capital Allowances?
Capital allowances are available on most purchases of plant and machinery, long life assets, integral fixtures and motor vehicles.
The normal rule is that expenditure qualifies for capital allowances when incurred. This is generally the date on which the obligation to pay becomes unconditional.
A person buying goods is legally required to pay for them on delivery unless there is a special agreement as to terms of payment. If the buyer is legally required to pay on delivery the obligation to pay becomes unconditional when the goods are delivered.
If goods are sold subject to reservation of title the obligation to pay becomes unconditional when the goods are delivered. The supplier has then fulfilled their part of the contract. This means the buyer incurs expenditure as soon as the goods are delivered.
There is an exception to the general rule. If there is a gap of more than four months between the date on which the obligation to pay becomes unconditional and the date on which payment is required to be made the expenditure is not incurred until the date on which payment is required to be made.
Where plant or machinery is acquired under a hire purchase contract, it is treated for tax purposes as though all the capital expenditure had been incurred at the time when it is brought into use for the purposes of the qualifying activity i.e. allowances are available on the full cash cost immediately even though the contract may be for three or four years.
The timing of capital expenditure should be considered carefully to maximise full tax relief.
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