Buying plant before year-end: what the tax relief is actually worth

Every year around year-end we get the same call: should I buy the excavator now or in April? The answer depends on the relief, the finance, and whether you'd have bought it anyway. Here's how to think about it.

The reliefs

Full expensing gives a 100% first-year deduction on new and unused plant and machinery for companies. The annual investment allowance gives 100% on the first £1m of qualifying spend, including second-hand kit. Cars are excluded from both; vans and commercial vehicles are not.

The number

A £120,000 excavator bought by a company paying 25% corporation tax reduces the tax bill by £30,000 in the year of purchase. On hire purchase, the allowance is available on the full price when the asset is brought into use, not as the instalments are paid.

When to buy

If you need it and profits are high this year, buy before year-end. If profits will be higher next year, or you're close to a marginal-rate threshold, it may be worth waiting. If you don't need it, don't buy it: a £30,000 tax saving on a £120,000 purchase still costs £90,000.

This article is general guidance and not advice on your circumstances. Talk to your accountant before acting on it.