Buy before the year end
Best-£8,820Net cost
- Cash out now
- -£12,000
- Annual Investment Allowance claimed
- £12,000
- Tax relief, this year
- £3,180
- Net cost
- -£8,820
Full relief in this year's accounts, at this year's rate.
Should I buy this before the year end, and should I lease it?
Compares buying an asset before your year end, buying it after, and leasing it — on the tax relief each one gives and when you get it.
On the figures so far
Buy before the year end leaves you with the lowest net cost.
Every figure came from you, and the gap is £900 — well outside rounding.
Refine it in 6 questions below.
The decision
Buy before the year end leaves you with the lowest net cost.
£900 better than buy after the year end, on the same figures.
- 26.5%Relief rate this year
- 19.0%Relief rate next year
- £1,000,000Annual Investment Allowance
- £900Difference in relief
Why
- A pound of deductible spend is worth 26.5% this year and 19.0% next year, because the profit falls in a different band.
- This year's profit is inside corporation tax marginal relief, where the effective marginal rate is 26.5% — higher than the 25% main rate, and the best year to take a deduction.
- The Annual Investment Allowance covers the whole £12,000, so the relief is immediate rather than spread over years of writing-down allowances.
- Leasing spreads £14,400 of payments and relief over 4 years. It costs more in total but takes nothing out of the bank on day one.
- Timing only changes when the relief lands, not whether you get it. If cash is tight, that difference matters more than the tax.
Does this apply to you?
Each of these has to be true. Where your answers settle it we have said so; where they cannot, the test is yours to check.
The item is plant or machinery used in the business. — met, on your answers
CAA 2001 s. 11
The purchase is within your annual investment allowance for the period. — met, on your answers
CAA 2001 s. 51A
You have enough taxable profit for the deduction to be worth something now. — met, on your answers
CTA 2010 s. 37; ITA 2007 s. 64
The asset is brought into use, or at least contracted for, before the period end. — we cannot tell from your answers
CAA 2001 s. 5 — the time of incurring expenditure
For a lease: it is an operating lease, not a hire purchase. — we cannot tell from your answers
CAA 2001 s. 67
What this does not model
- The tax side is the small half of a buy-or-lease decision. Cash flow, residual value and whether you want the asset at the end usually dominate.
- Cars are excluded from the Annual Investment Allowance and follow CO2-based rates instead — use the company car tool.
- Assumes the asset qualifies as plant and machinery and is in use by the year end. Ordering it is not enough.
- Hire purchase is treated as a purchase, not a lease, and is not separately modelled.
- Full expensing for companies can give 100% relief on new main-rate assets with no cap; not modelled.
This is information, not tax or financial advice. It shows how the rules apply to the figures you entered — it does not know the rest of your circumstances. Worth checking with an accountant before you act.
Rates as at 6 April 2026 — the 2026/27 tax year.
What to keep
The figures above are only as good as what sits behind them. These are the records HMRC would ask for.
- The purchase invoice, showing the date the obligation became unconditional.
- Delivery or commissioning records, for when it was brought into use.
- The finance or lease agreement, and whether it is hire purchase or an operating lease.
- A profit forecast for this period and the next — the whole decision is a rate comparison across years.
- For a car, the CO2 figure, which decides whether it gets 100%, 18% or 6%.
The dates that matter
| When | What | If you miss it |
|---|---|---|
| The accounting period end | Incur the expenditure to get the deduction in this period. | The relief lands a full year later. For a company in the marginal band the difference can be 7.5 percentage points of rate. |
| The period end, pro-rated | The annual investment allowance is apportioned for periods shorter than 12 months. | A short period has a smaller AIA, which catches businesses that change their year end. |
| 9 months and 1 day after the company period end | Pay corporation tax, net of the claim. | Interest from that date. |
| Within 12 months of the filing deadline | Amend the return to change a capital allowances claim. | The claim stands as filed; capital allowances claims are made in the return and are amendable only within that window. |
How to actually do it
Check the asset qualifies and at what rate
Most plant and machinery gets the annual investment allowance at 100%. Cars never do: 100% first-year for new zero-emission, 18% for low-emission, 6% for the rest.
Work out which period the expenditure falls in
Generally when the obligation to pay becomes unconditional, not when you pay. Under a contract with a payment date more than four months later, it is that date.
www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca11800
Compare the rate this year against next
A deduction is worth your marginal rate. For a company crossing £50,000 of profit that is 19% one year and 26.5% the next — which can make waiting worth more than having the asset early.
Price the lease properly
Operating lease payments are deductible as they are incurred, which spreads the relief but avoids the capital outlay. Hire purchase is a purchase for tax, whatever it is called commercially.
www.gov.uk/hmrc-internal-manuals/business-leasing-manual/blm00000
Claim it in the return
Capital allowances are claimed in the tax return for the period. You can claim less than the maximum, which is sometimes the right answer when it would otherwise waste a personal allowance.
Worked examples
Three situations, worked through. They use the same rules as the tool above, so you can check the arithmetic against a case near your own.
Company, £48,000 profit this year, £70,000 next, £15,000 machine
- Relief if bought now
- 19% — £2,850
- Relief if bought next year
- 26.5% — £3,975
- Difference
- £1,125 in favour of waiting
- Cost of waiting
- A year without the machine
The marginal relief band makes waiting genuinely better here. Whether it is worth a year without the asset is a business question, not a tax one.
Sole trader, £60,000 profit, £15,000 machine
- Marginal rate
- 40% plus 2% NI
- Relief
- About £6,300
- Net cost
- £8,700
- Next year, if profit falls to £40,000
- Relief at 20% plus 8%
For an unincorporated business the rate usually falls as profit falls, so buying in a high year is straightforwardly better.
£15,000 asset: buy outright or lease at £4,200 a year for four years
- Buy — relief now
- £15,000 deducted in year one
- Lease — total payments
- £16,800
- Lease — relief
- £4,200 a year, spread
- Difference
- £1,800 more cost, relief delayed
Leasing costs more in total and relieves more slowly. It wins on cash flow, not on tax — which is a perfectly good reason, but it should be the stated one.
The rules behind this
Every figure above comes from one of these. Where we have interpreted rather than calculated, the tool says so.
The annual investment allowance gives 100% relief on up to £1,000,000 of qualifying plant and machinery per period.
Cars are excluded from the AIA; relief is 100% first-year for new zero-emission, otherwise 18% or 6% a year.
Expenditure is incurred when the obligation to pay becomes unconditional.
Assets acquired under hire purchase qualify for capital allowances on the full capital cost.
Corporation tax is 19% to £50,000, 25% above £250,000, and effectively 26.5% in between.
Questions people ask
Is it always better to buy before the year end?
No — and this is the most common mistake. A deduction is worth your marginal rate, so if next year's rate will be higher, waiting is worth more. For a company moving from under £50,000 of profit into the marginal band, that is a 7.5 point difference.
Does buying reduce my tax bill by the full cost?
It reduces your taxable profit by the cost. The tax saved is the cost multiplied by your marginal rate — 19p to 26.5p in the pound for a company, 20p to 47p for an individual. Spending £15,000 to save £3,000 is only sensible if you needed the asset.
What about a car?
Cars never get the annual investment allowance. A new zero-emission car gets 100% in the first year; everything else gets 18% or 6% a year on a reducing balance, which takes well over a decade to relieve in full.
Is leasing better for tax?
Usually not. Buying gives 100% relief immediately under the AIA; an operating lease spreads it over the term and costs more in total. Leasing wins on cash flow and on avoiding obsolescence, which are real but different advantages.
What if the purchase creates a loss?
You can claim less than the full allowance. Claiming exactly enough to use your profit — and leaving the rest in the pool for future years — often relieves more in total than creating a loss that wastes a personal allowance.
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