Table of Contents
In the exciting world of business, every decision counts. And when it comes to financial decisions, timing often makes a considerable difference. A key area where timing plays a critical role is capital expenditure.
This term may sound daunting for beginners, but simply put, capital expenditure, or capex, involves businesses purchasing, upgrading, or maintaining physical assets such as property, machinery, buildings, or technology for their trade. While these expenses can’t typically be claimed as deductions against profits, businesses can receive tax relief through what are known as capital allowances.
In the realm of capital expenditure, timing is of the essence. The date of purchase, the nature of the payment, and the asset’s operational start date can all influence the amount of tax relief a business can claim. In this article, we will explore why the timing of capital expenditure matters and how to optimise it effectively.
Timing Your Capital Expenditure
Claiming Allowances on Purchases
When it comes to capital allowances, how you purchase matters. Even small businesses can receive capital allowances on both cash and hire purchases. For cash purchases, allowances can be claimed immediately. However, for hire purchases, relief can be claimed only from the point the equipment starts being used in the business.
For instance, if a hire purchase order is placed just before the end of an accounting year, but the equipment isn’t delivered and put to use by year-end, allowances can’t be claimed until the next period. As such, strategic timing of purchase orders can significantly influence your claimable allowances.
Understanding Payment Terms
The payment terms also play a crucial role in determining when capital expenditure is considered made. It is typically considered made when there is an unconditional obligation to pay for an asset.
If there are staggered payment terms or any special arrangements concerning payment, businesses need to check their positions carefully. If a business needs to use a relief in a certain period, it should consult with the supplier to agree on different payment terms or faster delivery. In essence, the ability to negotiate payment terms can impact when you can claim capital allowances.
Conclusion
As we can see, timing your capital expenditure is much more than a financial manoeuvre—it’s a strategic move that can significantly impact your business’s bottom line. Navigating the intricacies of capital allowances can be complicated. Therefore, it’s essential to consult with a financial advisor or tax specialist to ensure you’re making the most out of these benefits.
One such specialist is Monahans, who, through their Corporate Finance service, advise clients with support and advice on how to optimise their investments. Stephanie Hurst, Director, said, “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.”
By investing at the right time, businesses can optimise their expenditure, enhancing their financial health while fuelling growth. Remember, in business, as in life, timing is everything!