You do not have to claim every capital allowance you are entitled to. If a full claim would push your profit below the £12,570 personal allowance, the part below that line saves you nothing, because that profit was never going to be taxed. Claim only enough to bring profit down to the allowance and keep the rest for later years. And if you expect a bigger income next year, the same purchase can be worth 42p of tax for every pound then, against 26p now, so the date you buy matters as much as what you buy.
- £12,570personal allowance: use it or lose it, every year
- £7,105profit needed to keep your National Insurance credit
- £1 millionannual investment allowance, claimed in full or in part
- 14%a year on anything left in the main pool
Why a smaller claim can save more tax.
Two kinds of allowance meet on a tax return, and they behave in opposite ways.
- The personal allowance is use it or lose it. The first £12,570 of income each year is free of tax. Any part you do not use is gone on 5 April and cannot be carried into the next year.
- Capital allowances are yours to keep. You can claim the full amount, part of it or none of it. Whatever you do not claim stays in your pool of expenditure and can be claimed in later years.
So when a full claim would take your profit below £12,570, you are spending an allowance you could have kept in order to reduce income that was not going to be taxed. The better answer is to use the allowance that expires first.
What a claim is worth depends on the rate of tax it saves. For a sole trader in England, Wales or Northern Ireland in 2026 to 2027, counting income tax and Class 4 National Insurance together:
| Profit between | Income tax | Class 4 NI | Each £1 claimed saves |
|---|---|---|---|
| £0 and £12,570 | 0% | 0% | Nothing |
| £12,570 and £50,270 | 20% | 6% | 26p |
| £50,270 and £100,000 | 40% | 2% | 42p |
| £100,000 and £125,140 | 60%, as the personal allowance is withdrawn | 2% | 62p |
| Over £125,140 | 45% | 2% | 47p |
Income tax bands are different in Scotland, but the principle is the same: a claim is worth most where your income is taxed most.
If the claim would waste your personal allowance.
Worked example, 2026 to 2027
Sam, a decorator, has £18,000 of profit and buys a £15,000 van
Sam has no other income and prepares accounts in the traditional way, so the van qualifies for the annual investment allowance. Only £5,430 of Sam’s profit was ever going to be taxed: the part above £12,570.
Claim the whole £15,000
- Profit after the claim£3,000
- Tax and Class 4 NI£0
- Personal allowance left unused£9,570
- Allowances kept for later£0
Claim £5,430 only
- Profit after the claim£12,570
- Tax and Class 4 NI£0
- Personal allowance left unused£0
- Allowances kept for later£9,570
Both routes give a bill of nothing this year. The second leaves £9,570 in Sam’s main pool, where it is written down at 14% a year: £1,339.80 of allowance next year, saving £348.35 if that profit is taxed at 26%, and a little less each year after that.
The two things to keep in mind
What you hold back comes back slowly. The annual investment allowance can only be claimed in the year you buy. The part you do not claim is not lost, but it moves to the pool and is relieved at 14% of the falling balance each year, not all at once. Holding back is right when the claim would otherwise be wasted. It is not a way of moving the whole deduction to next year.
Do not go below £7,105. Profit of £7,105 or more gives you a National Insurance credit for the year, which counts towards your State Pension, without your paying anything. Below that line you get no credit unless you choose to pay Class 2 contributions of £3.65 a week, which is £189.80 for the year. A full claim in Sam’s case would have cost exactly that.
If the claim would turn a profit into a loss
A loss is a different question, because a trading loss can be carried forward or, in some cases, set against other income. That can be worth having, or it can waste the personal allowance in the same way, depending on what other income you have. It needs its own calculation before the return is filed.
If your income will be higher next year.
A capital allowance is set against the profit of the year in which you buy. If you expect next year’s profit to be taxed at a higher rate than this year’s, and the purchase can wait, waiting may save more.
Worked example
Priya has £30,000 of profit this year and expects £70,000 next year
She has won a contract that starts in May and needs £12,000 of equipment for it. She could buy in March, before the tax year ends, or in April, after it.
Buy in March, this tax year
- Profit falls from £30,000 to£18,000
- Rate saved on the £12,00026%
- Tax saved£3,120
Buy in April, next tax year
- Profit falls from £70,000 to£58,000
- Rate saved on the £12,00042%
- Tax saved£5,040
Waiting a few weeks is worth £1,920. The cost is time: the saving arrives a year later, in the bill for the following tax year.
The lines to watch in the year ahead
- £50,270. Income above it is taxed at 40%.
- £60,000. If you or your partner receive Child Benefit, 1% of it is clawed back for every £200 of income above this line, and all of it at £80,000.
- £100,000. The personal allowance is withdrawn by £1 for every £2 above it, so each pound between £100,000 and £125,140 is taxed at 60%.
A claim that brings income back under one of these lines saves more than the headline rate suggests.
When the date is decided for you
The date you bought is the date you signed the contract if payment is due within four months, or the date payment is due if it is later. With hire purchase, you claim when you start using the item. Moving a purchase from March to April only works if the contract moves too.
The tax follows the business decision. Buying something you do not need to save 26p or 42p in the pound still costs you the other 74p or 58p. And if you have already bought this year, claiming less now moves only a slice of the relief into next year, at 14% of the balance.
How cash basis changes the answer.
Cash basis is now the standard way for a sole trader or partnership to work out profit. Under it, equipment you buy to keep and use in the business, such as machinery, computers and vans, is not claimed as a capital allowance at all. It is deducted as an ordinary expense in the year you pay for it. Cars are the exception: they are still claimed through capital allowances, or through simplified mileage.
That removes the choice described above. On cash basis there is no part claim: the whole cost comes off the profit of the year in which you paid. If it takes your profit below £12,570, the personal allowance is wasted and nothing is held back. You are left with two ways of planning.
- Choose when to pay. On cash basis the date that counts is the date the money leaves. Paying after 5 April puts the whole cost into the next tax year.
- Choose traditional accounting for that year. You can use traditional accounting instead of cash basis by saying so on your return. Equipment is then claimed through capital allowances, and you decide how much. It brings other changes with it, such as counting income when it is invoiced rather than when it is received, so it is a decision for the whole return and not only for one purchase.
Limited companies cannot use cash basis, so the choice of how much to claim is always open to them.
The allowances for 2026 to 2027.
| Allowance | What you deduct | Who and what |
|---|---|---|
| Annual investment allowance | 100%, up to £1 million a year | Any business. New or second hand equipment, vans and lorries. Not cars. |
| Full expensing | 100%, with no limit | Companies only. New and unused main rate equipment. Not cars. |
| 40% first-year allowance | 40% in the first year, then 14% a year on the rest | Any business. New and unused main rate equipment bought on or after 1 January 2026. Not cars. |
| 100% first-year allowance | 100% | New electric and zero emission cars, and charging points, bought before April 2027. |
| Writing down allowance, main pool | 14% a year, down from 18% before April 2026 | Whatever is left in the pool, and cars with CO2 emissions of 50g/km or less. |
| Writing down allowance, special rate pool | 6% a year | Integral features of buildings, long life assets, and cars over 50g/km. |
| Small pools allowance | The whole balance | A main or special rate pool that has fallen to £1,000 or less. |
The fall in the main rate from 18% to 14% took effect on 1 April 2026 for companies and 6 April 2026 for everyone else. It makes holding back a little more expensive than it used to be, because what you leave in the pool now comes back more slowly. An accounting period that spans the date uses a rate between the two.
If you use something partly outside the business, such as a laptop or a car, a sole trader claims only the business share.
The same question for a company
A company has no personal allowance, so nothing is wasted in the same way, and full expensing or the annual investment allowance is usually worth claiming in full. The question returns at the company’s own lines. Profits up to £50,000 are taxed at 19%, profits over £250,000 at 25%, and in between marginal relief makes each extra pound of profit cost 26.5%. A claim that takes profit from £60,000 to £40,000 saves 26.5% on the first £10,000 and 19% on the second.
A company can also claim less than it is entitled to, which is sometimes right when a claim would create a loss that cannot be used for years.
Questions, answered.
No. Capital allowances are a claim, not an automatic deduction. You can claim the full amount, part of it or none, and whatever you do not claim stays in your pool to be claimed in later years. On cash basis the position is different: equipment is an expense in the year you pay for it, and only cars go through capital allowances.
Claim only enough to bring your profit down to £12,570. The first £12,570 of income is tax free whether you claim or not, so any claim beyond that point saves no tax this year. The part you do not claim moves to your main pool and is written down at 14% a year. Try also to keep profit at £7,105 or more, so that you get your National Insurance credit for the year.
No. The annual investment allowance can only be claimed for the period in which you bought the item. What you do not claim is not lost, but it is relieved through writing down allowances at 14% a year on the falling balance, not as a single deduction.
If the purchase can wait, it may be worth it. The allowance is set against the profit of the year in which you buy, so equipment bought in a year when your profit is taxed at 40% saves 42p in the pound with National Insurance, against 26p at the basic rate. The saving arrives a year later, and the purchase has to make business sense first.
No. Any part of the £12,570 personal allowance not used by 5 April is lost. That is why it makes sense to use it before using allowances that can be kept.
Keep reading.
Every figure in this note was checked against GOV.UK on 30 September 2026 and is for the 2026 to 2027 tax year unless it says otherwise. Desk Notes are general guidance for the UK, not advice on your own situation.
The number behind this noteSee what a claim does to this year’s bill with the sole trader estimate on the Tax Desk.
Open the sole trader estimateMore Desk Notes
Rather we did it for you?
Buying equipment this year? Ask before you pay.
We work out what a purchase saves in this tax year and the next, and how much of the allowance to claim, before you commit to it. A free first call and a fixed quote within a working day.