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Many business owners invest in equipment, believing the tax relief will sort itself out later. The focus is usually on getting the asset in place so the business can move forward. The problem comes months down the line when the tax bill arrives, and the figures do not look how they were expected to. At that point, the purchase has already been made, and the opportunity to plan has gone.
 

This is where capital allowances make a real difference. They are often treated as a background tax adjustment, but in practice, they influence how much tax you pay and when you pay it. Recent capital allowance changes have made this even more important. The same piece of equipment can now lead to very different tax outcomes depending on how and when it is bought, and whether the position is reviewed in advance.
 

Why Capital Allowances Matter More Than Many UK Businesses Realise

Capital allowances control how quickly you receive tax relief on assets such as machinery, equipment, tools, and technology. These are not treated like everyday running costs. Instead, the relief is usually spread over time.

The Timing Matters

If relief is claimed earlier, your corporation tax or income tax bill will be reduced sooner. If relief is delayed, you pay more tax upfront and wait longer to see the benefit. For businesses that invest regularly, this affects cash flow, budgeting, and longer-term planning. It can also influence decisions around dividends, retained profits, and reinvestment. 
 

With recent UK capital allowance changes, the balance between upfront relief and delayed relief has shifted. This means business tax planning now plays a bigger role than simply claiming allowances at the year end.
 

The New 40% First-Year Allowance Explained in Simple Terms

One of the key changes is the introduction of a 40% first-year allowance for certain assets acquired after 1 January 2026.

On the surface, this sounds straightforward. In reality, whether it helps depends on the detail.
 

What the 40% First-Year Allowance Applies To

• New and unused main-rate plant and machinery
• Limited companies, sole traders, and partnerships using the accruals basis
• Businesses that cannot access full expensing, particularly unincorporated businesses
• Certain leased assets, which are relevant for leasing and rental activities
   

What Does Not Qualify

• Cars, even if used entirely for business
• Second-hand assets
• Assets that fall outside the main-rate category

This is where assumptions cause problems. Many businesses come across “40% allowance” and expect it to apply automatically. Eligibility depends on the type of asset, how it is purchased, and how the business is structured. For higher-value investments, misunderstanding this can lead to paying more tax on business profits than necessary.
 

If you are planning an equipment purchase, this is usually the right point to seek capital allowances advice as part of wider corporation tax planning, not after the event.
 

Same Investment, Different Tax Result

Consider a simple hypothetical situation.

A business spends £100,000 on qualifying equipment.
 

Nothing about the asset has changed. The difference comes from understanding which relief applies and planning the purchase properly. This is why capital allowances should be considered before committing, not when the accounts are being finalised.
 

Why Software Alone Is Not Enough

Accounting software will calculate capital allowances based on the data entered. It does not question whether the asset could have been bought at a different time, structured differently, or claimed under an alternative relief.

That judgement comes from experience.

A proper review looks at:
 

• Whether the 40% first-year allowance is suitable
• Whether other reliefs produce a better outcome
• How the claim fits into future tax years
• How it aligns with overall business tax planning

This becomes especially important for businesses involved in leasing or renting assets, where eligibility is narrower and timing matters.
 

Common Capital Allowance Mistakes When Rules Change

• Equipment is purchased without checking whether it qualifies for accelerated relief
• All assets are assumed to be treated the same for tax
• Capital allowances are claimed automatically rather than strategically
• Investment decisions are left until late in the accounting year

These are not technical errors, but planning gaps that gradually increase tax bills and reduce cash flow.
 

This is why capital allowances should be reviewed alongside corporation tax advice, rather than being treated as a standalone calculation. 
 

Capital Allowances and Cash Flow

Capital allowances are often discussed in accounting terms, but their impact is very real. Relief claimed earlier reduces tax payable sooner. That improves liquidity and gives the business more flexibility. Delayed relief means higher tax payments now and benefits spread over several years.
 

For established businesses, this can affect retained profits and dividend decisions. For growing businesses, it can influence funding needs and investment timing.
 

This is why allowances work best when they form part of a wider tax planning strategy, not an isolated adjustment.
 

What to Review Before Buying Business Assets

• Whether the asset qualifies as main-rate plant and machinery
• Whether the purchase method affects eligibility
• Whether the 40% allowance is the right option
• How the claim impacts future tax years, not just the current one
   

When to Speak to Your Accountant

If your business is planning to invest in equipment, technology, or infrastructure, the right time to review capital allowances is before the purchase is made.

• Not after the accounts are prepared.
• Not when the tax return is due.

At Doshi Accountants, we help businesses use capital allowances, corporation tax planning, and wider business tax advice to improve tax efficiency and cash flow over the long term.
 

If you want to understand how capital allowance changes affect your next investment, a short conversation with a UK accountant before committing can make a meaningful difference.

📞 Call us on: 020-8239-4999 Or 📧 Email Us at: dhruv@doshiaccountants.co.uk to get professional help today!