I work with a lot of businesses that rely on machinery, vehicles or specialist kit — cafés with espresso machines, small manufacturers with CNCs, builders with vans and diggers. One question I get asked more than any other is: how can I plan capital purchases so I don’t pay more tax than I need to, while keeping the cashflow I need to run the business?
There’s no single right answer — the best option depends on your business structure (sole trader, partnership, limited company), cash position, planned growth and the type of asset. In this piece I’ll walk through the practical planning steps I use with clients, the allowance and timing choices that matter, and the non-tax considerations that often make or break a good decision.
Start with the business case, not the tax rule
Before you even consider allowances or finance, be clear on why you need the asset. Ask yourself:
If the answer is “it’s nice to have” rather than “it’s needed to deliver or grow sales”, it’s often better to delay. Tax relief is helpful, but it shouldn’t drive capital decisions.
Know the main capital allowance routes (and when they apply)
There are a few common ways tax relief works for plant and machinery in the UK. The technical names and available reliefs change from time to time, so I always check the current HMRC guidance before advising clients. Broadly, you’ll see these options:
Checklist: before purchase, check (a) whether the asset qualifies as plant and machinery, (b) which allowance or pool it falls into, and (c) whether any temporary relief or enhanced allowances apply.
Timing matters — align purchases with your accounting period
I regularly help clients shift the timing of orders to get the most value from allowances. Examples that often make a difference:
Tip: keep clear documentation of order dates, delivery notes and invoices. That evidence is key if HMRC ever queries the timing of reliefs.
Decide buy vs finance vs lease
Tax is only part of this decision. Cashflow, balance sheet impact and operational flexibility are equally important.
| Option | Typical tax position | Cashflow / operational notes |
|---|---|---|
| Buy outright | Claim capital allowances (AIA or writing down allowances) subject to qualification | Large upfront outlay; asset on your balance sheet; full control |
| Hire purchase | Often treated as capital item for purchaser; allowances may be available | Spread cost, you usually acquire the asset at the end; liability on balance sheet |
| Operating lease / rental | Rental payments typically deductible as trading expenses | Lower upfront cost, off-balance-sheet (depending on contract); less ownership risk |
Which to choose? If you need to preserve cash and want predictable monthly costs, leasing or rental can be attractive — especially for kit that becomes obsolete quickly (IT, some catering equipment). If you want to own a long-life asset and can use allowances to offset tax in the near term, buying or hire purchase makes sense.
Think about pools, special-rate assets and disposal planning
Not every piece of equipment gets the same treatment. Certain assets (for example long-life fixtures or integral features) may sit in a “special rate” pool and attract slower relief. Vehicles also have their own rules depending on CO2 emissions and whether they’re cars or commercial vans.
Also plan for disposals. When you sell or scrap an asset, there can be balancing charges or allowances that affect tax. For example, selling a piece of plant for more than its tax written down value might create a taxable balancing charge. I always model likely disposal proceeds when we’re considering a major purchase.
Use cashflow and tax modelling — not guesswork
For larger purchases I build a simple three-year model showing:
Seeing the numbers often clarifies trade-offs. I use Excel templates for this and share them with clients so they can test “what if” scenarios — for example: what if we delay by six months, or choose hire purchase with a balloon payment?
Don’t forget non-tax advantages
Practical issues matter. Service and maintenance costs, warranty length, downtime risk, and supplier reliability all affect the overall value. A cheaper machine that causes weeks of downtime will cost far more in lost revenue than any tax saving. Also consider software licensing (SaaS), which is usually an operating expense rather than a capital one — that changes the tax and cashflow picture.
Practical next steps I give to clients
If you want, I can run through a short checklist with you and model one purchase for your business — that’s often the quickest way to see a clear, practical option that balances tax, cashflow and operational risk.
