Limited Company Tax for Directors / Lesson 8 of 9
Buying equipment through the company
Buy it on 31 March or 1 April and the relief arrives a year apart.
The short answer
- ✓ The annual investment allowance gives full relief on qualifying equipment in year one
- ✓ Cars are excluded and use writing down allowances based on emissions
- ✓ Timing a purchase either side of the year end moves relief by a full year
- ✓ Disposal proceeds are brought back in, so relief is timing rather than exemption
Capital versus revenue
Day to day running costs are deducted from profit as you incur them. Equipment expected to last is capital, and relief comes through capital allowances instead.
The annual investment allowance
The AIA lets a company deduct the full cost of qualifying plant and machinery in the year of purchase, up to a generous annual limit. For most small companies this means equipment is effectively fully deductible immediately.
| Purchase | Qualifies for AIA? |
|---|---|
| Computers, tools, machinery | Yes |
| Office furniture | Yes |
| Vans and commercial vehicles | Yes |
| Integral building features | Yes, in a separate pool |
| Cars | No, separate rules by CO2 |
| Buildings and land | No |
Cars are the exception people trip on. They never qualify for AIA and get writing down allowances at a rate set by emissions, with the most favourable treatment for zero-emission vehicles.
Timing around the year end
Year end 31 March
Buy on 31 March relief in the year just ending
reduces this year's tax bill
Buy on 1 April relief in the new year
tax saving arrives a year later
Same money, same equipment, a year apart.If profit is above £50,000 this year and expected to be lower next year, accelerating a purchase is worth more than the headline rate suggests, because relief is obtained against the higher marginal band.
Selling or scrapping later
When you dispose of an asset you claimed allowances on, the proceeds are brought back into the computation. Sell a van you fully deducted and the sale proceeds increase taxable profit through a balancing charge. The relief was a timing advantage, not a permanent exemption.
The bit HMRC does not spell out
The purchase must be genuinely for the business. Buying equipment purely to reduce a tax bill is a poor trade: you spend a pound to save perhaps 25p. It only makes sense for something you actually needed anyway.
Directors are talked into year end spending sprees on exactly this reasoning every March, and end up with equipment they did not need and 75p less per pound spent.
Common mistakes
- Expecting AIA on cars. They are excluded.
- Ignoring the year end date. A day can move relief a year.
- Forgetting balancing charges on disposal. Relief is timing, not exemption.
- Buying things to save tax. You spend a pound to save a quarter of it.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your investment
Estimate the tax saving from claiming capital allowances on plant & machinery.
Your Corporation Tax rate is set automatically from profit, including marginal relief between and .
Relief is given at your marginal Income Tax rate (the allowance also saves Class 4 NI in many cases - not included here).
AIA gives 100% relief on most plant & machinery (up to a year), so the whole cost reduces taxable profit in year one. Writing-down allowances spread relief over many years on a reducing balance.
Tax saving
claimed in year one at over the asset's life at
- Qualifying spend
- Above AIA cap (to WDA pool)
- Allowance, year one
- Tax relief rate
- Tax saved, year one
- Total tax saved (full life)
Estimate only. Eligibility, pooling and balancing charges depend on your circumstances.
Cumulative tax relief
How quickly each method delivers the tax saving. AIA front-loads the whole relief; writing-down allowances trickle it out over many years.
| Year | Allowance | Tax saved | Pool balance left |
|---|---|---|---|
Reducing-balance method: each year you claim of the remaining pool. Shown until 95% of relief is given.
What this means for you
Do this next, in order
Estimates only - not financial or tax advice. Confirm figures on GOV.UK or with an adviser.
Compare saved scenarios
| Scenario | Method | Year-1 saving | Total saving | |
|---|---|---|---|---|
Key takeaways
- ✓ The annual investment allowance gives full relief on qualifying equipment in year one
- ✓ Cars are excluded and use writing down allowances based on emissions
- ✓ Timing a purchase either side of the year end moves relief by a full year
- ✓ Disposal proceeds are brought back in, so relief is timing rather than exemption
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. Does a car qualify for the annual investment allowance?
2. Your year end is 31 March. You buy equipment on 1 April. When does relief arrive?
3. Is buying equipment purely to reduce a tax bill a good idea?
Sources
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