Where a business has a 31 March or 5 April year end, the end of the tax year is a significant date as far as tax relief for capital expenditure is concerned.
For new equipment to attract Capital Allowances, the expenditure must be incurred on or before the end of the accounting period. It is therefore important to consider the timing of expenditure and the possibility of accelerating your planned investments.
Limited companies and unincorporated businesses are entitled to 100% tax relief for the first £1 million spent on new and used equipment in a 12-month period. This is called the “annual investment allowance” (AIA). The AIA does not apply to motor cars but there is a special 100% tax relief if you buy a new zero-emissions motor car.
In addition to the AIA, limited companies buying new (not second hand) equipment are entitled to fully expense the cost of most acquisitions against business profits. There is no financial limit on expenditure qualifying for this “full expensing” relief.
For expenditure incurred on or after 1 January 2026, a new 40% first year allowance is available to limited companies and unincorporated businesses. The allowance can be used against qualifying assets (not cars or second-hand assets) and will be particularly useful to unincorporated businesses that have used all their £1million AIA.
Where equipment is bought under a hire purchase contract, the capital allowances outlined above are available on the full cost of the asset provided it has been brought into use by the end of the accounting period – even if the payments are spread over a number of months. It is important to take note of when assets are brought into use.
