Growing
The 50% first-year allowance: why most small firms do not need to wait to buy equipment
The first-year allowance rises to 50% in January. Most small firms already get full tax relief on equipment, so waiting rarely helps. Here is who it does help.
The first-year allowance on main-rate equipment rises from 40% to 50% on 1 January 2027. For most small firms, that is not a reason to wait. The £1m Annual Investment Allowance already lets most businesses set the full cost of qualifying equipment against their taxable profits in the year they buy it.
So the better question is not when the tax relief improves. It is whether the equipment pays for itself, and how you fund it.
Section 01
What changed in the Budget
The Budget on 28 October made three changes to capital allowances on plant and machinery. Capital allowances are the tax relief you get for buying business equipment.
- The first-year allowance goes up. It rises from 40% to 50% for qualifying spending from 1 January 2027.
- The writing-down allowance goes down. The main rate falls from 14% to 12% a year. This starts from 1 April 2027 for companies and 6 April 2027 for sole traders and partnerships.
- The Annual Investment Allowance stays at £1m. That is the amount of qualifying spending you can deduct in full each year.
Section 02
Should you wait until January to buy equipment?
For most small firms, no.
According to HMRC, full expensing and the £1m Annual Investment Allowance already give full upfront relief for most new investment in plant and machinery. Full relief means 100% of the cost in year one. A 50% allowance cannot improve on that.
Take a business buying a £40,000 machine this month. If the spending qualifies for the Annual Investment Allowance, the whole £40,000 can count against this year's profits. Waiting until January would not add anything.
Myth 01
“The tax relief gets better in January, so I should hold off”
For most small businesses the relief is already 100% through the Annual Investment Allowance. What waiting does cost is the work the equipment could be doing in the meantime.
Decide on the job the equipment does, not the date.
Section 03
Who does the 50% first-year allowance help?
HMRC says the first-year allowance particularly helps two groups.
The first is sole traders and partnerships spending more than £1m on equipment in a year. Full expensing is only open to companies. So above the £1m limit, the first-year allowance is their main upfront relief.
The second is businesses buying equipment to lease out to others. If that is your trade, the change may matter to your timing.
The allowance only applies to new equipment, not second-hand. If you are near the £1m limit, or your year end falls close to January, ask your accountant before you set a date.
Section 04
The decision that still matters
Once tax is out of the way, three questions are left. Will the equipment earn back its cost? How long will that take? And how do you pay for it without draining your cash?
How you fund it also changes who claims the tax relief. On hire purchase you are treated as the owner once the equipment is in use, so you can claim the allowances. On a lease, the leasing company claims them and your rentals count as a business cost. Our guide to hire purchase vs leasing sets out the difference in full.
Spreading the cost can protect your cash while the machine starts earning. Our equipment finance guide compares hire purchase, leasing and a loan side by side.
If you are planning a bigger investment, bizbritain can look at the options across a panel of 100+ lenders. Find out more about growth finance for equipment, stock and new premises. You need at least 12 months of trading history.
You pay bizbritain nothing unless a lender on our panel issues an Agreement in Principle.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
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