Lease V Buy

Hi Sir

Thank you so much for these lectures, I use them for every exam and they’re always incredible.

1 (a) Have I correctly understood your lecture by taking away the following: When a lease payment is made in advance (at the beginning of year 1) log the outflow in time 0, despite the fact the payment relates to time 1, but this will have missed the tax calculation for time 0 (end of the current accounting year) and so the tax calculation occurs 12 months from this point, at the end of, but still within time period 1?

1 (b) When awarding capital allowances, I always think of the allowance awards as: No of years of useful life (or years until plan to scrap) LESS 1 year so that I don’t forget to calculate a balancing charge or allowance? However, when a piece of machinery, is bought at the end of the current year (or at the end of any year, for that matter) it will be awarded a full capital allowance in that year, despite the fact that it still has the full life expectancy in front of it and so in those situations, would it be acceptable to think of the (and I know you’re not a huge fan of relying on formulas) number of capital allowances that need to be awarded as: 1 year + expected useful life (or expected use until scrap) in years – 1 year?

1 (c) Could there ever be a situation where a piece of machinery is purchased midway through the year and has a useful life which doesn’t end in a full year? For example, if we were told a machine, with a 3.5 year useful life, is purchased at the beginning of year 1, and will be scrapped for £10k at the end of it’s useful life, would the standard technique need to be adapted? I understand that we always award full capital allowances in the first year (which I think would be time 0, in this context), irrespective of the purchase date, but when would the last capital allowance be awarded, would it be at the end of year 3 and then a balancing charge calculated in time 4?

Sorry for rambling.

Thank you so much.