Planning Business Investment? What the Budget Means for Capital Allowances

A purchase decision is about more than tax

Vehicles, machinery, equipment and technology can all represent significant commitments. Capital allowances may reduce the taxable profits of a business, but the available relief depends on the asset, how it is used and the company’s circumstances. It is worth understanding the rules before you sign an order or agree finance.

What is changing?

The government has announced an increase in the main-rate first-year allowance from 40% to 50% for qualifying expenditure incurred on or after 1 January 2027. It also plans to reduce the main-rate writing-down allowance from 14% to 12% from 1 April 2027 for Corporation Tax. These changes do not replace all existing reliefs: qualifying companies may still be able to claim full expensing, while the Annual Investment Allowance can provide relief on eligible expenditure within its limits.

Why timing matters

A higher first-year allowance does not automatically mean that every business should delay a purchase. An asset may qualify for a different, more generous relief. Commercial need, delivery dates, finance costs, profits and cash flow may be more important than the tax timing alone. Some assets, including cars, have their own restrictions.

A simple example

Imagine a business planning to upgrade its production equipment early next year. Before committing, it should check the classification of the equipment, whether it qualifies for full expensing or another allowance, and whether the planned purchase fits its cash forecast. The answer may be different for a sole trader, a company buying to use equipment itself, or a business acquiring assets to lease.

Plan the investment, then the tax

The right approach starts with what the investment will achieve. Will it improve capacity, reduce costs or support a new contract? Exchange can help you model the cash impact and review the available tax relief alongside the wider business case.