Most equipment a company buys qualifies for a 100% deduction in the year the expenditure is incurred, through the £1 million annual investment allowance or full expensing. Buying before your year end can bring that deduction forward by twelve months. It does not make the purchase cheaper than it would otherwise be, and the date that counts is usually delivery, not when you place the order.
The allowances available in 2026
Depreciation in your accounts is not deductible for tax. Instead, you claim capital allowances on plant and machinery: vans, tools, machinery, computers, furniture and fixtures. The main options for expenditure in 2026 are these.
- Annual investment allowance (AIA): a 100% deduction on up to £1 million of qualifying spending each accounting period, for companies, sole traders and partnerships of individuals. New and second-hand items both qualify. Cars do not. A group of companies shares a single £1 million allowance, and so do companies controlled by the same person if they are related, broadly where they share premises or carry on similar activities.
- Full expensing: a 100% first-year allowance with no cap, for companies within the charge to corporation tax only. The asset must be new and unused, and not a car or bought for leasing. It covers main rate assets.
- 50% first-year allowance: the company-only equivalent for new special rate assets, such as integral features. The other half goes into the special rate pool the following year.
- 40% first-year allowance: new from 1 January 2026, enacted by Finance Act 2026 on 18 March 2026. It applies to new, unused main rate assets bought by companies, sole traders and partnerships. Cars and second-hand assets are excluded. Unlike the other first-year allowances, it is available for assets bought for leasing, provided the lessee uses them in the UK tax net.
Whatever is not covered by these goes into a pool and gets writing down allowances. The main rate fell from 18% to 14% from 1 April 2026 for companies and from 6 April 2026 for sole traders and partnerships. Where an accounting period straddles the change, a blended rate applies for that period. The special rate stays at 6%.
| Allowance | Rate | Who can claim | Main conditions |
|---|---|---|---|
| Annual investment allowance | 100% up to £1m a year | Companies and unincorporated businesses | New or used; not cars |
| Full expensing | 100%, no cap | Companies only | New and unused main rate assets; not cars or leasing |
| Special rate first-year allowance | 50% | Companies only | New and unused special rate assets; not cars |
| 40% first-year allowance | 40% | All businesses | New main rate assets from 1 January 2026; not cars; UK leasing allowed |
| Zero-emission cars | 100% | All businesses | New, 0g/km CO2, bought by 31 March 2027 (companies) or 5 April 2027 (income tax) |
| Main pool | 14% a year | All businesses | Includes cars up to 50g/km |
| Special rate pool | 6% a year | All businesses | Integral features, long-life assets, cars over 50g/km |
| Structures and buildings allowance | 3% a year | All businesses | Non-residential construction costs; needs an allowance statement |
For a typical owner-managed company spending well under £1 million, the AIA covers everything except cars. It makes sense to use the AIA first on special rate items such as heating, lighting and electrical systems, which would otherwise get only 50% upfront, and to use full expensing for new main rate items.
Cars, buildings and fixtures
Cars are the main exception. A new electric or zero-emission car gets a 100% first-year allowance, but only if bought by 31 March 2027 for companies or 5 April 2027 for unincorporated businesses. A second-hand electric car goes in the main pool at 14%. Other cars go in the main pool if they emit 50g/km or less, and in the special rate pool at 6% if they emit more. Vans and lorries are not cars, so they can qualify for the AIA or full expensing.
The building itself never qualifies as plant. Construction or renovation costs of non-residential buildings may get the structures and buildings allowance at 3% a year. Integral features such as lifts, air conditioning, water and electrical systems are special rate plant, so on a fit-out it pays to identify them separately rather than lumping everything together as building cost.
When does the spending count?
Year end planning often goes wrong on timing. Expenditure is incurred when the obligation to pay becomes unconditional, which for most purchases is when the goods are delivered. Ordering in December and taking delivery in January puts the expenditure in January.
There is an exception. If payment is not due until more than four months after the obligation becomes unconditional, the expenditure is only incurred on the due date. And HMRC can ignore terms that make the obligation unconditional earlier than normal commercial practice, where the main purpose is to bring the claim forward.
Hire purchase is more generous. Once you are entitled to the benefit of the contract, you are treated as the owner, and when the asset is brought into use you can claim allowances on the full capital cost, including instalments not yet paid. Interest is not part of the claim. An asset bought on finance in December but not installed until January will usually miss the earlier year.
Does buying early save tax?
Corporation tax for the financial year starting 1 April 2026 is 19% on profits up to £50,000 and 25% above £250,000. Between those limits, marginal relief applies, and the effective rate on each extra pound of profit is 26.5%. Those limits are divided between associated companies and reduced for short accounting periods.
So a £10,000 purchase saves £2,500 at the main rate, or £2,650 in the marginal band. It still costs the company at least £7,350. Buying something you do not need to save tax is a poor trade. The benefit of buying before the year end is timing: the relief arrives a year earlier.
Worked example. A company with a 31 December year end expects taxable profits of £200,000 for 2026, before capital allowances. It needs a new £40,000 van. If the van is delivered on 15 December 2026, the AIA or full expensing reduces profits to £160,000.
- Tax without the claim: £50,000 at 25%, less marginal relief of £750, so £49,250.
- Tax with the claim: £40,000 at 25%, less marginal relief of £1,350, so £38,650.
- Saving in 2026: £10,600, which is 26.5% of £40,000.
If the van arrives on 5 January 2027 instead, the same deduction falls into 2027. That only matters if the rate differs. If 2027 profits were expected to be below £50,000, the deduction would be worth £7,600 at 19%, so buying in December would be better by £3,000.
Disposals and losses
Allowances are recovered when you sell. If full expensing was claimed on the whole cost, the entire sale proceeds are taxed as a balancing charge in the year of sale. For the 50% allowance, half the proceeds are charged immediately. Assets relieved by the AIA or the 40% allowance follow the normal pool rules, where the sale proceeds reduce the pool and can create a charge if they exceed it.
Capital allowances can also create or increase a trading loss. A company can usually set a loss against other profits of the same period, carry it back against profits of the previous 12 months, or carry it forward. Relief at 19% is worth less than relief at 26.5%, so in a low-profit year it can be better to claim less than the full amount and leave the balance in the pool. You can choose to do that.
Sole traders and partnerships use the same AIA and pools, but cannot claim full expensing or the 50% allowance, and must reduce claims for private use. For them, the 40% allowance mainly helps above the AIA limit or for leasing.
What to do now
- Check your accounting period end date and estimate taxable profits, including whether you sit in the 19%, 26.5% or 25% band.
- List equipment you were already planning to buy in the next six months, and only bring forward what the business genuinely needs.
- Confirm delivery, or installation for hire purchase, will happen before the year end, and that payment terms are normal.
- Keep invoices showing what was bought, whether it was new, and the delivery date.
- If you have associated companies or a fit-out with integral features, agree how the AIA and pools will be allocated before the return is prepared.
If you are planning a significant purchase before your company year end, book a consultation and we will work out the timing and claim that gives the best result. See also our corporate tax service, and our note on salary or dividends for 2026/27.
This article is general information about UK tax, based on the law and HMRC practice at the date shown above. It is not advice, and reading it does not make you our client. Tax rules change and their effect depends on your circumstances, so please speak to us before acting on it.