Tax Deductions – are you getting them soon enough?

Until 31st December 2015 purchases of Plant, Equipment, Fixtures & Fittings (Excluding cars)  i.e. Capital Allowances(CAs) of up to £500,000 in a financial year receive a full tax deduction all at once; any excess is spread over 20 years plus.

e.g. your company has ordered some new machinery but it will take a couple of months to arrive and be installed. How can you ensure that your company gets a tax deduction for the cost at the earliest date?

Timing

It’s a frequently held myth that a company can’t claim CAs for equipment until it first uses it in its business.  This even seems to catch some tax experts out.  Actually, your company can claim CAs on equipment as soon as it has an unconditional obligation to pay for it.  That’s usually the date it’s invoiced for it.  But there can be trouble if the invoice or purchase order doesn’t require immediate payment.

Tip 1

There is no reason you can’t agree specific terms and conditions of sale with the supplier.  The seller should co-operate if you explain your reasoning.  Obtain an agreement in writing which says that once the order is placed you will pay within a specified time, irrespective of the delivery date.  The seller must agree to deliver the goods, irrespective of the date of payment.  That way the trigger date for claiming CAs is the date you order the goods.

Tip 2

If the above isn’t possible, then aim to get the goods delivered to you before your company’s financial year end.  This will create an obligation for you to pay and so the delivery date will count as the relevant date for claiming CAs.

Tip 3

If all else fails, then paying for the goods you’ve ordered before your company’s financial year end will ensure that you can claim CAs in the current period.

Summary

Your company can claim Capital Allowances for equipment as soon as it becomes obliged to pay for it.  If the purchase agreement doesn’t require payment until after delivery and your company’s financial year end is approaching, consider paying for the goods in advance to ensure tax relief will be allowed in the current year.

Should you require any further information please do not hesitate to contact our tax department on 0141 643 9200, or reach us here.