Good time to invest in new machinery?




The next twelve months could potentially be a good time to invest in new or second-hand machinery before the planned phase out of the Basic Payment Scheme begins and with a potential reduction in capital allowances.




There are tax pitfalls to avoid, so it is sensible to have a long term plan in regards to buying and selling machinery. For accounting purposes, second-hand machinery is viewed in the same way as new. Tax relief is available in the form of capital allowances.


The Annual Investment Allowance (AIA) can be used to offset machinery and plant purchases against tax liabilities. The AIA was first introduced in 2008 and is a 100% allowance that businesses can claim up to a specified annual amount.


For the past three years, the upper limit has been set at £200,000. However, as of 1 January 2019 until 31 December 2020, a two-year temporary increase has been introduced which takes the annual limit to £1m subject to transitional rules. It is thought that the rate will then return to £200,000.


Raising the relief on qualifying expenditure to £1m is designed to provide an incentive for businesses to increase or bring forward their capital expenditure above the annual limit on plant and machinery. Any additional qualifying expenditure will attract the normal writing-down allowances at the annual rate of 18%.


The timing of the change means that for businesses which do not have a 31 December year end, a hybrid level of AIA will initially be available. It is important to be aware of the timings in regards to claiming AIA. Purchases are deemed to be made:

  • when you sign the contract, if payment is due within less than 4 months
  • when payment is due, if due more than 4 months later

If you purchase machinery under a hire purchase contract you can claim for the payments you have not made yet when you start using the asset. You cannot claim capital allowances on the interest payments.


Selling second-hand machinery and equipment receives the same tax treatment as new machinery and equipment. It is therefore important to take into account the tax implications of selling second hand machinery; if capital allowances have been claimed the sale price of any second hand machinery will be deduced from your capital allowances pool for tax purposes.


If you would like to discuss the implications and timings of replacing farm machinery, please speak to a member of our agricultural team.