Capital Allowances Year-End Planning: Timing Purchases to Maximise Relief

Capital allowances are given in the accounting period in which the expenditure is incurred, so moving a purchase a few days either side of a company year end can change the tax saving by thousands of pounds and pull the relief forward by a full twelve months. The annual investment allowance UK 2026/27 rules give a company 100% relief on up to £1,000,000 of qualifying plant and machinery, but that allowance is only worth what the company's marginal corporation tax rate makes it worth in the period it lands. With the main pool writing down allowance now cut to 14%, expenditure that misses a 100% allowance takes far longer to unwind than it used to. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, reviews capital expenditure timing with company directors before every year end. This article explains when expenditure counts as incurred, how the allowances stack, and how to decide whether to buy now or wait.

Key Takeaways

• The annual investment allowance gives 100% corporation tax relief on up to £1,000,000 of qualifying plant and machinery per 12 month accounting period, pro-rated for shorter periods.
• Expenditure is treated as incurred on the date the obligation to pay becomes unconditional, which is normally delivery, not the date the invoice is paid.
• The main pool writing down allowance fell from 18% to 14% from 1 April 2026, so a purchase that misses a 100% allowance recovers its relief far more slowly.
• A new 40% first-year allowance applies to new main pool plant and machinery from 1 January 2026, including assets bought for leasing, but excludes cars and second-hand assets.
• Corporation tax is 19% on profits up to £50,000 and 25% above £250,000 in 2026/27, with an effective marginal rate of 26.5% in between, so the same claim can be worth 19p or 26.5p in the pound depending on when it falls.
• Companies under common control share a single £1,000,000 annual investment allowance between them.

What is the annual investment allowance in 2026/27, and what does it cover?

The annual investment allowance is a 100% deduction against taxable profits for up to £1,000,000 of qualifying plant and machinery bought in a 12 month accounting period. It covers most tools, machinery, commercial vehicles, computer equipment, office furniture and integral features such as electrical and air conditioning systems. Cars are excluded, as is expenditure on land and most buildings.

The AIA £1 million limit is per accounting period, not per asset or per invoice, and it is pro-rated where the period is shorter than twelve months. A company preparing accounts for a seven month period to 31 March 2027 has an allowance of £583,333, not £1,000,000. The limit is also shared: companies under common control, and companies within the same group, divide a single £1,000,000 between them and can allocate it as they choose.

For most owner-managed businesses the £1,000,000 ceiling is theoretical. The practical question is not whether the allowance is large enough but which accounting period the expenditure lands in, and what rate of corporation tax that period will bear. For a full overview of the rules, see our guide to the Annual Investment Allowance.

When is capital expenditure treated as incurred for capital allowances?

Expenditure is treated as incurred on the date the obligation to pay becomes unconditional, which for goods is usually the date of delivery rather than the date of order or the date of payment. Placing an order in March and taking delivery in April puts the expenditure in the later period, regardless of when the deposit was paid. This single rule decides most year-end capital allowances limited company planning.

Two refinements matter. Where the contract makes payment due more than four months after the obligation becomes unconditional, the expenditure is treated as incurred on that later payment date. And where an asset is acquired on hire purchase, the full capital cost is treated as incurred when the asset is brought into use, so a machine delivered and commissioned before the year end attracts relief on the whole capital element even though the instalments run for another three years. Signing paperwork on the last day of the year is not enough.

How does full expensing interact with the annual investment allowance and the 40% first-year allowance?

Full expensing should be claimed first, because it gives companies 100% relief on new and unused main rate plant and machinery with no monetary cap, leaving the £1,000,000 annual investment allowance free for expenditure that has no other route to immediate relief. That means second-hand assets and special rate expenditure such as integral features, which would otherwise sit in a pool attracting only 6% a year.

From 1 January 2026 a 40% first-year allowance is also available on new main pool plant and machinery, including assets bought for leasing, but not on cars or second-hand assets. It sits below full expensing and the annual investment allowance in the ordering, and matters most where those two have been exhausted or are unavailable.

Anything left over falls into the pools. The main pool writing down allowance is 14% a year on a reducing balance from 1 April 2026, down from 18%, and the special rate pool remains 6%. On a £50,000 main pool balance that is £7,000 of relief in year one rather than the full £50,000.

Should you bring a purchase forward or push it into the next period?

Bring the purchase forward when this year's profits are taxed at a higher marginal rate than next year's, and defer it when the reverse is true. The saving is often larger than directors expect, because the marginal rate between £50,000 and £250,000 of profit is 26.5%, higher than the 25% main rate.

Take a Surrey engineering company with a 31 March year end, taxable profits of £300,000 for the year to 31 March 2027, and expected profits of £120,000 the following year. It plans to buy £100,000 of qualifying plant.

If the machine is delivered by 31 March 2027, profits fall from £300,000 to £200,000. Tax drops from £75,000 to £49,250, a saving of £25,750, and the company keeps that cash almost a year earlier.

If delivery slips to April 2027, the claim is made against profits of £120,000, reducing them to £20,000. Tax drops from £28,050 to £3,800, a saving of £24,250.

Delivery three days earlier is worth £1,500 in tax and a year of cash flow. Reverse the profit figures and the answer reverses with them.

What year-end traps catch companies out?

The most common trap is claiming allowances against profits that are already sheltered. Capital allowances are optional: a company may claim any amount from nil to the maximum and leave the balance in the pool. In a loss-making year, or a year where profits sit below £50,000 and are taxed at 19%, restricting the claim and carrying the expenditure forward at 14% often produces more relief overall.

Short accounting periods are the second trap, because the £1,000,000 limit is time-apportioned. So is the associated companies rule, which reduces the £50,000 and £250,000 corporation tax thresholds when a director controls more than one company, quietly pushing profits into a higher band. Accounting periods straddling 1 April 2026 also attract a hybrid main pool writing down allowance blending 18% and 14% by reference to the days falling either side, as set out in HMRC guidance under the Capital Allowances Act 2001.

Frequently Asked Questions

When does a company need to buy equipment to claim capital allowances this year?

The asset must be delivered, or for hire purchase brought into use, on or before the last day of the accounting period. Capital allowances follow the date the obligation to pay becomes unconditional, which is normally delivery, not the order date or the payment date. An order placed before the year end but delivered afterwards falls into the following period.

How much is the annual investment allowance for a limited company in 2026/27?

The annual investment allowance is £1,000,000 of qualifying plant and machinery per 12 month accounting period. The limit is pro-rated for accounting periods shorter than twelve months, so a nine month period carries an allowance of £750,000. Companies under common control or within the same group share a single £1,000,000 limit between them.

Is it better to buy equipment before or after the company year end?

Buy before the year end when current profits are taxed at a higher marginal rate than next year's expected profits, and defer when next year's rate will be higher. In 2026/27 the marginal rate on profits between £50,000 and £250,000 is 26.5%, above the 25% main rate, so a claim landing in that band is worth more than one landing above £250,000.

Do vans and commercial vehicles qualify for the annual investment allowance?

Vans and commercial vehicles qualify for the annual investment allowance because they are treated as plant and machinery rather than cars. Cars are excluded and instead attract writing down allowances, at 14% in the main pool for vehicles emitting 50g/km of CO2 or less and 6% in the special rate pool for higher emitting vehicles.

Can a company claim less than the full capital allowances available?

Yes. Capital allowances are claimed rather than automatic, and a company may claim any amount between nil and the maximum available. Unclaimed expenditure remains in the relevant pool and attracts writing down allowances in later periods, which is usually the better answer in a loss-making year or a year taxed at the 19% small profits rate.

How Blue Tick Can Help

Blue Tick Accountants advises limited company directors on when to commit to capital expenditure, how to order full expensing, the annual investment allowance and the 40% first-year allowance, and when to restrict a claim so relief is not wasted at 19%. A short conversation before your year end is worth considerably more than a review afterwards, because once the period closes the timing decision has already been made. Head to our website and book a meeting now.

Conclusion

The value of a capital allowances claim depends on two things: which accounting period the expenditure falls into, and what marginal rate of corporation tax that period bears. With the main pool writing down allowance now at 14%, a purchase that misses 100% relief takes far longer to pay back. Check delivery dates against your year end, forecast next year's profits before committing, and decide the timing deliberately rather than letting a supplier's lead time decide it for you.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners, landlords and the self-employed across the UK. Leon advises owner-managed companies on capital allowances, corporation tax planning and profit extraction. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: Second-Hand Assets and Capital Allowances: What Limited Companies Can Claim.