Buying Equipment Through Your Limited Company: Capital Allowances

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Last updated 23 October 2026. Written by the Limited Company Accountant UK team, part of Accotax. Figures are for the 2026/27 tax year; always check GOV.UK for the latest rates.

Short answer: When a limited company buys equipment such as computers, machinery or vans, it claims capital allowances instead of deducting the cost as a normal expense. The Annual Investment Allowance gives 100% relief on up to £1 million a year, and full expensing gives 100% first-year relief on qualifying new plant and machinery.

Key facts

AIA limit	£1 million per year
Full expensing	100% for qualifying new plant and machinery
Cars	Special rules by CO2 emissions
Main pool writing down allowance	18% a year
Special rate pool	6% a year

What capital allowances are

Accountants do not deduct the cost of long-lasting assets from profit in the normal way, because the asset will help the business for several years. Instead, the company claims capital allowances, a tax relief designed to give the company a deduction for the cost of qualifying assets over time, or sometimes immediately.

Capital allowances apply to equipment, machinery, tools, furniture, vans and some fixtures. They do not apply to land or buildings. The relief reduces taxable profit and therefore Corporation Tax.

The Annual Investment Allowance

The Annual Investment Allowance, or AIA, lets a business deduct 100% of the cost of qualifying plant and machinery, up to £1 million a year, from its profits. It applies to new and second-hand equipment. For most small companies, the AIA covers everything they buy.

If the company has associated companies, the AIA must be shared between them. If the accounting period is shorter or longer than 12 months, the limit is adjusted. Cars do not qualify for the AIA, and you cannot claim for items you already owned and brought into the company.

Full expensing

Full expensing is a permanent relief that offers 100% first-year relief on qualifying new plant and machinery bought by companies, with no cap. It is particularly useful for companies that spend more than the AIA limit. Second-hand assets and items bought for leasing do not qualify for full expensing. A 50% first-year allowance is available for qualifying special rate assets such as long-life assets and integral features.

For a small company, the practical effect is the same as the AIA, but full expensing makes planning simpler if you invest heavily.

What counts as qualifying equipment

Typical qualifying assets include computers, laptops, phones, tools, workshop machinery, office furniture and vans. Fixtures such as lighting and heating systems may also count, depending on their type. The asset must be used in the business, and if there is private use, the allowance is restricted.

Cars are treated separately. New cars with zero CO2 emissions qualify for 100% first-year allowances. Other cars are put into the main or special rate pools, with a writing down allowance of 18% or 6% a year based on emissions.

When and how to time purchases

The allowance is usually available for the accounting period in which the asset is bought. If you plan to buy a major item, such as machinery or a vehicle, consider doing so before your year end, to bring the deduction forward by a year. The tax saving arrives when the Corporation Tax bill is paid, nine months and one day after the year end.

Do not buy something you do not need just to save tax. A £1,000 asset saves £190 of tax at 19%, but still costs £810 net. The decision should make business sense first.

Buying through the company or personally

If the equipment is for the business, buying it through the company is usually the best choice, because the company claims the allowance directly. If you buy a laptop personally and use it for business, the company can reimburse you or buy it from you at market value, but that adds paperwork.

Keep the invoice, the date of purchase and the description of the asset. Your accountant records it on the fixed asset register, calculates the allowance and includes it in the Corporation Tax computation.

Selling or disposing of an asset

When you sell an asset that you have claimed allowances on, the company may have to pay back some of the relief through a balancing charge. If the asset is in the main pool, the sale proceeds are deducted from the pool balance, and a negative balance leads to a balancing charge. When you stop using an asset or scrap it, the same pool rules apply.

For items claimed under the AIA or full expensing, the sale proceeds may be taxable if the item is sold for more than its tax written-down value. This is usually small for ordinary equipment, but it matters for expensive machinery or vehicles.

Leasing versus buying

Leasing equipment is another option. The lease rentals are deductible as an expense, and no capital allowance is needed. If the lease is a finance lease or hire purchase, the company is treated as the owner and may claim capital allowances on the asset, with the finance charges deductible as interest.

Compare the cash flow and tax effect of each option. Buying gives you an asset and immediate tax relief, while leasing spreads the cost and keeps cash in the business for longer.

Worked example: a £4,800 workstation

A designer’s company buys a new computer and screen for £4,800 in the last month of its financial year. Because the equipment qualifies for the Annual Investment Allowance, the company deducts the full £4,800 from that year’s profit. If the company’s profit would otherwise have been £60,000, the taxable profit falls to £55,200, and the Corporation Tax saving is around £1,000 including marginal relief, as the profit is above £50,000.

Had the equipment been bought a week after the year end instead, the deduction would be pushed back by a full year. The saving is the same in theory, but a year’s delay in the cash benefit is a cost. This is why timing purchases around the year end is such a common planning step.

Records you need for capital allowances

For each asset, keep the supplier invoice, the date of purchase, the price including any delivery or installation, and a short description of its use in the business. Your accountant will maintain a fixed asset register showing the allowance claimed each year, and the tax written-down value of the pool.

If you buy something for both business and personal use, such as a phone, record the business proportion and claim only that share. A neat set of records takes minutes when you buy an asset and saves hours if HMRC asks questions later.

Frequently asked questions

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