Capital Allowances Before You Pay

Published 20 June 2026

The timing of tax relief for purchases of equipment isn’t straightforward when payments are delayed or goods are purchased through hire purchase (HP) agreements.

Here's something most construction business owners don't know: you can claim tax relief on equipment before you've finished paying for it.

Sounds too good to be true? It's not - but only if you understand the timing rules.

The way capital allowances work with delayed payments and hire purchase agreements can either save you thousands in tax this year, or accidentally push your relief into next year.

Let me show you how to make the timing work in your favour.

Understanding Capital Allowances Timing

Right now, tax relief on equipment purchases is extremely generous:

Annual Investment Allowance (AIA): Up to £1 million in tax relief per year

• Full Expensing: Unlimited relief for companies on qualifying equipment

• 100% first-year relief on many items

• But here's the catch: when you get that relief depends on your payment timing.

Get it right, and you claim relief this year on equipment you won't finish paying for until next year.

Get it wrong, and you wait an extra 12 months for relief you could have claimed already.

For construction businesses buying excavators, vans, tools, or site equipment, this timing can make a £20,000+ difference to your tax bill.

Want to know what else you might be missing? Check our Tax Savings Checklist - it covers five commonly overlooked deductions that could save you £12,000-£25,000+ annually.

Hire Purchase Capital Allowances Rules

When you buy equipment on hire purchase (HP), special timing rules apply that work in your favour.

Here's how it works:

1. Deposit payment - Gets capital allowances relief in the year you pay it

2. Future payments - Get relief in the year the equipment starts being used in your business

3. Interest/hire charges - Claimed separately as they're paid

This means you can claim 100% tax relief on the full purchase price in year one, even though you're paying it off over several years.

Pro tip: When signing HP agreements near your year end, ensure delivery is scheduled with enough time for installation and first use before year end. This accelerates your tax relief by a full year.

Looking for more equipment tax relief strategies? Our guide to the Annual Investment Allowance explains how to get 100% relief on up to £1 million of equipment purchases.

The Four-Month Payment Trap

Here's where many businesses accidentally delay their capital allowances by a full year.

The rule: If your purchase contract allows payment more than four months after the agreement becomes binding, you can only claim capital allowances in the year you actually make the payments.

This only matters if the purchase and payment dates fall either side of your year end - but when it does matter, it's costly.

Capital Allowances Timing Checklist

Before making equipment purchases, ask yourself:

✓ When does my financial year end?

✓ When will the equipment be delivered?

✓ When will it first be used in the business?

✓ What are the payment terms - within or beyond four months?

✓ Am I using hire purchase, and if so, when does the agreement start?

✓ Could I negotiate different payment terms to optimize capital allowances timing?

✓ Would delaying the purchase by a few weeks or months improve my tax position?

For hire purchase specifically:

✓ Can the equipment be delivered and used before my year end?

✓ Have I claimed capital allowances on the deposit in the year paid?

✓ Am I treating hire charges separately from capital payments in my accounts?

Common Capital Allowances Timing Mistakes

Assuming Payment Date = Relief Date

Wrong thinking: "I paid for it in March 2027, so I'll claim relief in my 2027 accounts."

Reality: If you signed the contract in November 2026 with payment due within four months, you can claim relief in your 2026 accounts even though you paid in 2027.

Missing the HP Advantage

Wrong thinking: "I'll wait until I've paid off the HP before claiming full capital allowances."

Reality: You claim the full capital balance in the year the equipment starts being used, regardless of future payment dates.

Ignoring Year-End Timing

Wrong thinking: "I'll order this in December; it doesn't matter when it arrives."

Reality: If your year ends 31 December and delivery happens 2 January, you've just delayed your relief by 12 months.

For company directors looking for other tax-efficient strategies, our article on insurance tax savings explains how to structure life and medical insurance to save £800-£1,200+ annually.

Making Capital Allowances Timing Work

The difference between claiming capital allowances this year versus next year could mean:

£25,000 tax relief claimed 12 months earlier

£6,250 cash (at 25% Corporation Tax) available sooner for reinvestment

Better cash flow when you need it most

Three key takeaways:

1. Hire purchase timing rules favour early relief - you claim the full amount when equipment is first used, not when you've finished paying

   
   

2. The four-month payment rule can trap you - if payment can be made more than four months after contract signing, relief is delayed to when you actually pay

   
   

3. Delivery and first use dates matter - equipment must be in use before year end to claim relief that year

Planning a major equipment purchase?

Before you sign anything, understand how the timing will affect your capital allowances claim. A conversation with your accountant before the contract is signed could save you thousands in delayed tax relief.

Need help maximizing your capital allowances and equipment tax relief?

Get more help from B R Pusser & Co Ltd

Understanding capital allowances timing can make a significant difference to your cash flow and tax position. By structuring equipment purchases correctly, understanding hire purchase rules, and avoiding common timing mistakes, you can ensure you claim tax relief at the earliest opportunity.

If you're unsure how capital allowances apply to your business, or you're planning a major equipment purchase and want to maximise the tax relief available, B R Pusser & Co Ltd is here to help.

We provide tailored tax advice and planning support for construction and trades businesses, helping you claim every allowance you're entitled to while keeping your business tax-efficient.

Contact us today to discuss your equipment purchases and build a tax-efficient capital allowances strategy.