Understanding the tax side of your forklift investment can make a big difference to your bottom line. The choice between buying vs leasing affects your cash flow, but it also determines how much you can claim back in relief. Getting it right means maximising your savings and manageing costs more effectively.
Our guide explains the key forklift tax benefits UK businesses should know about, comparing how different tax rules apply to purchases and leases. Whether you’re investing in new equipment or exploring flexible finance arrangements, we’ll help you make an informed decision that works best for your operation and budget.
What Are the Tax Benefits of Buying a Forklift?
When you purchase a forklift outright, you can claim capital allowances on the expenditure incurred. This means you can deduct a portion of the cost from your taxable profits, reducing your corporation tax bill.
Forklifts qualify as plant and machinery for tax purposes. This classification is crucial because it determines which tax reliefs you can access.
How Does the Annual Investment Allowance Work?
The Annual Investment Allowance (AIA) lets you claim 100% tax relief on qualifying plant and machinery in the year of purchase. Currently set at £1 million, this allowance covers most forklift investments.
If you buy a forklift for £25,000, you can deduct the full amount from your profits before tax. For a business paying 25% corporation tax, that’s an immediate saving of £6,250. The AIA applies whether you’re a limited company or a sole trader. It covers new forklifts and used equipment, making it a flexible option for businesses at any stage.
What Is the Super-Deduction and Does It Still Apply?
The super-deduction was a temporary tax incentive introduced in April 2021. It allowed companies to claim 130% capital allowances on qualifying plant and machinery investments made between April 2021 and March 2023.
This temporary tax relief has now ended. However, it’s worth being aware of it when reviewing historical purchases or if similar schemes are introduced in the future.
What If My Investment Exceeds the AIA Limit?
Spending beyond the £1 million AIA threshold means the excess amount goes into either the main rate pool or special rate pool for capital allowances.
Main rate assets qualify for an 18% writing-down allowance each year. Special rate assets receive 6% annually. Forklifts typically fall into the main rate category, so you’d claim 18% of the remaining value each tax year.
First-year allowances may also apply to certain qualifying expenditure, though these are less common for standard forklift purchases.
How Does Leasing a Forklift Affect Your Taxes?
Lease payments differ from purchases in their tax treatment. The way you claim tax relief depends on whether you choose an operating lease or a finance lease.
Can You Deduct Lease Payments as a Business Expense?
Operating lease payments are usually treated as a straightforward business expense. You can deduct the full monthly or annual cost from your profits before calculating your tax liability.
If your forklift hire costs £500 per month, that’s £6,000 per year you can offset against your taxable income. This approach provides predictable tax relief that matches your payment schedule.
One key advantage is simplicity. You don’t need to calculate capital allowances or track depreciation. The deduction happens automatically as you incur the expense.
What About Finance Leases?
Finance leases are treated differently for tax purposes because HMRC views them more like purchases. You may be able to claim capital allowances on the asset’s value, similar to buying outright.
The lease interest payments can often be claimed as a separate business expense. This means you potentially benefit from capital allowances and interest deductions. Your accountant can help determine the exact treatment based on the specific terms of your finance lease agreement.
Which Option Offers Better Cash Flow?
Cash flow considerations often matter more than total tax savings. Buying a forklift requires significant upfront capital, even with the tax relief. Leasing spreads the cost over time. Your monthly payments are lower than the purchase price, freeing up capital for other business needs. You still get tax relief through deducting lease payments, but you avoid the initial cash outlay.
The AIA provides substantial first-year relief when buying. However, you need to wait until your tax return to actually receive the benefit. The cash must come from your business account first.
Operating lease arrangements can improve working capital management. You keep more money available for stock, wages, and unexpected expenses. This flexibility can be valuable, especially for growing businesses.
What Should You Consider Before Making a Decision?
Tax benefits are important, but they’re not the only factor. Consider how long you’ll need the forklift truck, how quickly technology changes in your industry, and what maintenance requirements look like.
- Buying makes sense if you’ll use the forklift for many years. You own the asset outright and can eventually sell it, recovering some value. The full tax relief through AIA makes this particularly attractive for profitable businesses.
- Leasing suits businesses that want flexibility. Technology advances quickly, and leasing lets you upgrade equipment more easily. Maintenance and servicing are often included in hire agreements, reducing unexpected costs.
Should You Speak to Your Accountant?
It’s always worth speaking to your accountant before making a decision. Tax rules change regularly, and what works for one business may not suit another. An accountant can assess your profitability, growth plans, and capital investments to determine which option offers the best outcome. With HMRC guidance often complex, professional advice ensures you stay compliant while claiming every tax relief available to your business.
Get Expert Advice on Investing in a Forklift
Choosing between buying and leasing a forklift involves more than tax considerations. You need equipment that keeps your operation running without putting unnecessary strain on your finances.
TAG Forklift Truck Services offers new and used forklifts for sale, along with flexible hire options to suit different business needs. Whether you’re looking for short-term or long-term agreements, our team can guide you through the financial options available.
Don’t hesitate to contact us to discuss your forklift needs and the best way to finance them.