Deposits paid on fixed assets

A deposit or stage payment for a fixed asset that has not yet been delivered is not yet property, plant and equipment and is not depreciated. It is a right to receive the asset, carried at the amount paid until delivery, when it is transferred into the cost of the asset. Medium and large companies have a specific balance sheet line for it, “Payments on account and assets in course of construction”.

Is a deposit already a fixed asset?

Not in the sense of property, plant and equipment. The FRS 102 glossary defines property, plant and equipment as tangible assets held for use in producing or supplying goods or services, for rental or for administration, and expected to be used during more than one period. Until the van, machine or building is delivered, the company has nothing tangible to use.

What it does have is an asset of a different kind. Paragraph 2.33 defines an asset as a present economic resource controlled by the entity as a result of past events, and paragraph 2.34 lists rights to receive goods or services among the rights that qualify. A deposit gives the company exactly that: a contractual right to receive the asset when the supplier delivers.

Because the item is not yet available for use, it is not depreciated. Paragraph 17.20 says depreciation begins when an asset is available for use, meaning in the location and condition necessary for it to be capable of operating in the manner intended by management. A payment on account never meets that test; only the delivered asset does.

Where does it go on the balance sheet?

The Companies Act formats decide the headings. For medium and large companies, Schedule 1 to the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) lists four tangible fixed asset items, the last of which is “Payments on account and assets in course of construction”. A deposit on plant, vehicles or property sits there until delivery.

The small company formats in Schedule 1 to SI 2008/409 have only two tangible fixed asset lines, one for property and one for plant and machinery. There is no separate line, so the payment is classified by what it is for and identified in the fixed asset note. The “Payments on account” item under stocks in both sets of formats is for payments towards stock, not fixed assets, and should not be used for a machine deposit.

Some preparers show deposits within prepayments in debtors instead. If that route is taken, note (5) to the small company formats requires the amount falling due after more than one year to be shown separately for each debtors item, and the classification should be applied consistently from year to year.

How are stage payments for something being built handled?

The answer depends on who owns the work as it progresses.

• Supplier builds, title passes on delivery. Stage payments are advances, just like a single deposit. Nothing is capitalised as the company’s own asset until delivery.
• The company owns the work as it is built. HMRC’s Capital Allowances Manual at CA11800 describes a milestone contract as one where the asset becomes the property of the purchaser as it is being constructed and payment falls due as agreed stages are completed. Here the company holds a partly built asset, and the certified work is accumulated as an asset under construction. See assets under construction for when that starts to be depreciated.

Both cases can share the same balance sheet line for a medium or large company, but the distinction affects impairment, capital allowances timing and what the company has if the supplier fails.

What about vehicles on finance and property bought off plan?

Vehicles and equipment on a lease. If the item will be held under a lease rather than bought, the deposit is an advance lease payment. Paragraph 20.47 includes lease payments made at or before the commencement date, less lease incentives received, in the cost of the right of use asset, so the deposit moves into that asset when the lease starts.

Property. A deposit paid on exchange of contracts for a building the company will occupy is carried as a payment on account until completion. On completion, the full purchase price plus legal fees and non refundable purchase taxes forms the cost under paragraph 17.10(a), and the site and the building are then accounted for separately under paragraph 17.8.

Commitments. The balance still to pay is not a liability until the supplier performs, but it must be disclosed. Paragraph 17.32(b) requires the amount of contractual commitments for the acquisition of property, plant and equipment. For small companies, paragraph 1AC.29 requires the total amount of financial commitments, guarantees and contingencies not included in the balance sheet.

What if the deposit is in a foreign currency?

Paragraph 30.9 requires monetary items to be retranslated at the closing rate, while non monetary items measured at historical cost stay at the rate on the date of the transaction. The glossary defines monetary items as assets and liabilities to be received or paid in a fixed or determinable number of units of currency. A deposit that will be settled by delivery of the asset is not a right to currency, so it is normally left at the historical rate and becomes part of the asset’s cost at that rate. A deposit that has become refundable in cash, for example because the order has been cancelled, is a right to currency and is retranslated.

What if the supplier fails or the deal falls through?

The carrying amount must not exceed what the company can expect to recover, whether as the asset or as a refund. If the supplier enters insolvency before delivery, the deposit is written down to the amount realistically recoverable. A forfeited deposit, where the company walks away and loses the money, is an expense. For impairment principles generally, see impairment of assets under FRS 102.

What does this look like in practice?

Illustration only. A company with a 31 March year end orders a van costing £30,000 (ignoring VAT). It pays a £5,000 deposit on 15 March and the balance on delivery on 20 April.

Date	Entry	Debit	Credit
15 March	Deposit paid	Payments on account £5,000	Bank £5,000
31 March	Year end: no depreciation, £25,000 commitment disclosed	No entry	No entry
20 April	Van delivered, balance paid	Motor vehicles £30,000	Payments on account £5,000; Bank £25,000

Depreciation starts on 20 April. In the fixed asset note for the following year, the £5,000 appears as a transfer out of payments on account and into motor vehicles.

How are deposits treated for tax?

Depreciation is never deductible, as BIM35201 explains, so the question is when capital allowances become available. Section 5 of the Capital Allowances Act 2001 treats capital expenditure as incurred as soon as there is an unconditional obligation to pay it, with exceptions: an amount not required to be paid until more than four months after the obligation arises is incurred on the payment date, and an anti avoidance rule in section 5(6) applies where an obligation is made unconditional earlier than normal commercial usage mainly to bring allowances forward. CA11800 explains that where goods must be paid for on delivery, the obligation becomes unconditional on delivery.

Section 11(4)(b) also requires the person incurring the expenditure to own the plant or machinery as a result of incurring it. A deposit on an asset that has not yet been delivered therefore may not attract allowances in the year it is paid; the contract terms decide. See the annual investment allowance and capital allowances explained. For when VAT on a deposit can be reclaimed, see VAT on deposits and advance payments.

What mistakes come up most often?

• Capitalising the deposit straight into vehicles or plant and starting depreciation before delivery.
• Putting a machine deposit in the stocks “payments on account” line.
• Forgetting to disclose the unpaid balance as a capital commitment.
• Claiming capital allowances in the year the deposit was paid without checking when the obligation became unconditional and when ownership passed.
• Leaving an old deposit on the balance sheet after the order was cancelled or the supplier failed.

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Related Accountapedia entries

• Accounting for the disposal of fixed assets
• Intangible assets: the corporation tax regime
• VAT on deposits and advance payments
• HMRC security deposits for PAYE and VAT
• Can I capitalise staff time on fixed assets

Sources

• Financial Reporting Council: FRS 102 September 2024 tmKYWO6
• legislation.gov.uk: SI 2008/410, schedule 1
• legislation.gov.uk: SI 2008/409, schedule 1
• GOV.UK: Manual page CA11800
• GOV.UK: Manual page BIM35201
• legislation.gov.uk: Act 2001 c. 2, section 5
• legislation.gov.uk: Act 2001 c. 2, section 11

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.