The Entrepreneurs Tax Guide

ALBERT: PAY NOW, SAVE LATER
Albert, who is a 40% taxpayer, owns a block of ten flats that could be rented out for £1,000 a month each. All the flats are currently vacant, and need refurbishment, ideally before too long.
A firm quotes Albert £10,000 per flat to do the work, but would give him a 10% discount if it were given the contract for all ten now. He would be a fool not to take this offer up. Or would he?
The alternative would be to spread the cost over, say, five years, doing two flats each year. Ignoring other expenses, the profit-and-loss account for the ‘do it now’ option looks like this:

(click on table to enlarge)
If, in contrast, he goes for the piecemeal option, each of the five years’ accounts will look like this:

(click on table to enlarge)
It’s likely that the Revenue would argue, in the first scenario, that the £90,000 is capital, and therefore disallowable. The refurbishment cost in the second scenario is much more likely to pass muster.
So Albert, by taking the firm up on its discount offer, has saved £10,000, but had to pay extra tax of £90,000 × 40%, that is £36,000.