Capital allowances timing of expenditure

Capital allowances are initially received in the chargeable period in which expenditure on plant and machinery is ‘incurred’. The normal rule is that expenditure is incurred on the date on which the obligation to pay becomes unconditional. This may be set by the contract to purchase the plant and machinery.

Where there is no contract, or the contract contains no specific agreement as to terms of payment, a person buying goods is legally required to pay for them on delivery. Therefore in most cases expenditure is incurred when the goods are delivered.

There is an exception to the general rule. If there is a gap of more than four months between:

1. •

   the date on which the obligation to pay becomes unconditional, and

2. •

   the date on which payment is required to be made

then the expenditure is not incurred for capital allowances purposes until the date on which payment is required to be made.

If some of the expenditure is required to be paid more than four months after