Buying a machine? The month you buy it matters

Most conversations I have about machinery happen too late. The machine has been ordered, the finance is signed, and I’m being asked to account for a decision rather than help make it.

That is a shame, because capital allowances are one of the few areas where a conversation beforehand reliably changes the outcome.

Why timing matters

Capital allowances reduce your taxable profit when you invest in qualifying plant and machinery. The reliefs available, and how much you can claim in the year of purchase, depend on the type of asset, how you finance it, and when the expenditure falls.

That last point catches people. A purchase a few weeks either side of your year end can land in a completely different accounting period, which changes when you get the relief and sometimes how much. If the business is having a strong year, accelerating relief into it may be worth real money. If it’s having a poor one, it may be worth less than you think.

How you finance it changes things

Outright purchase, hire purchase and leasing are not equivalent for tax. They differ in whether you are treated as owning the asset, when relief becomes available, and how the payments are treated. The finance company’s job is to sell you finance, and their comparison will be about monthly cost. It won’t factor in your tax position.

The questions worth asking before you commit

Does this asset qualify, and at what rate? Which accounting period will the expenditure fall into, and is that the right one? Does the finance structure preserve the relief I’m expecting? And what does my profit forecast look like, so we know what the relief is actually worth?

Four questions, one conversation, usually before you sign rather than after.

Grant funding sits alongside this

If you are a North West manufacturer investing in digital technology, there is government-backed support available through the Made Smarter adoption programme. Grant funding and capital allowances interact, and the accounting treatment of a grant needs to be right. Worth building into the same conversation rather than treating separately.