Full Expensing UK — 100% Tax Relief on Plant and Machinery for Limited Companies

What Is Full Expensing?

Full expensing is a 100% first-year capital allowance. When your company buys qualifying new and unused plant and machinery, you can deduct the entire cost from your taxable profits in the same accounting period — there is no upper limit on how much you can claim. It was introduced for spending from 1 April 2023 and was made permanent in the Autumn Statement, so it is no longer a temporary measure with an expiry date.

The mechanism is simple. Spend £20,000 on a qualifying new machine and your company's taxable profit for the year falls by £20,000. At the main Corporation Tax rate of 25%, that is £5,000 less tax to pay. The relief is given in the year of purchase rather than dribbled out over many years through the usual writing-down allowances, which is what makes it valuable — you get the cash-flow benefit upfront.

The 50% First-Year Allowance for Special Rate Assets

Not every asset qualifies for the full 100%. Some assets fall into what HMRC calls the "special rate" pool, and for new and unused special rate assets a company can claim a 50% first-year allowance instead. You deduct half the cost in year one, and the remaining balance is written down at the usual 6% special rate in later years.

Special rate assets are mainly integral features of a building and long-life assets. For a trade business fitting out a workshop, unit or yard, the common ones are:

• Electrical systems and general lighting installations
• Cold water systems
• Space and water heating systems, air conditioning and air cooling
• Lifts, escalators and moving walkways
• External solar shading
• Long-life assets (those with an expected working life of 25 years or more)

So if you wire out a new unit or install heating and air conditioning, that spend goes through the 50% first-year allowance rather than full expensing — still useful, just a slower form of relief.

What Qualifies for Full Expensing

Full expensing applies to most things a trade business would recognise as plant and machinery, provided the items are new and unused. Typical qualifying purchases include:

• Tools and equipment — power tools, test equipment, generators, compressors
• Machinery — workshop machines, lifting and handling equipment, plant
• Commercial vehicles — vans, lorries, tippers and other goods vehicles
• Computers and IT — laptops, desktops, servers, networking kit
• Certain fixtures — fitted items that count as plant within a building

The vehicle point catches a lot of people out, so it is worth stating plainly: vans qualify, cars do not. A new van bought for the business can be fully expensed. A car cannot — cars are excluded from full expensing entirely, regardless of emissions, and are dealt with through the normal capital allowance rules instead.

What Does Not Qualify

Full expensing has firm boundaries. The following are excluded:

• Cars — excluded outright, as above
• Second-hand or used equipment — the asset must be new and unused, so a used machine or a part-exchange van does not qualify for full expensing
• Items bought to lease out — assets you acquire to hire or lease to someone else are generally excluded
• Items for a non-trade use — the asset must be used in your qualifying trade, not for an investment or non-business purpose

The new-and-unused condition is the one that bites hardest for trades. A lot of plant and many vans are bought used, and used assets are shut out of full expensing. The good news is that used assets can still get relief through the Annual Investment Allowance, which is where things get more flexible.

How It Compares to the Annual Investment Allowance (AIA)

The Annual Investment Allowance is the relief most trade businesses already rely on, and for many it does the whole job on its own. The AIA gives 100% relief on qualifying plant and machinery up to £1,000,000 a year. Crucially, the AIA is more generous in two ways that matter to trades:

• It covers new AND used assets — unlike full expensing, the AIA is not restricted to new and unused items, so a second-hand machine or a used van can get 100% relief through the AIA
• It is available to sole traders and partnerships as well as companies — full expensing is companies only, but the AIA is open to unincorporated businesses too

Because the AIA cap is £1,000,000 a year, most trade businesses never spend enough in a single year to exhaust it. For them, the AIA covers everything and full expensing is largely academic. Full expensing matters mainly in two situations: when your annual plant and machinery spend exceeds the £1,000,000 AIA limit, or when you want the certainty of a permanent, uncapped 100% relief sitting alongside the AIA. For a typical trade, the practical headline is: use the AIA, and treat full expensing as the backstop for big spending years.

The Disposal Catch — Balancing Charges

Here is the part that surprises people. When you later sell an asset you claimed full expensing on, you do not simply walk away with the money. You have to add a balancing charge back onto your taxable profit, and for full-expensed assets that charge is 100% of the sale proceeds.

For assets you claimed the 50% special rate first-year allowance on, the immediate balancing charge on disposal is 50% of the proceeds, with the remainder handled through the special rate pool.

In other words, the relief is not a permanent giveaway — it is brought forward. If you fully expensed a £40,000 machine and later sold it for £15,000, that £15,000 goes straight back into your taxable profit as a balancing charge in the year of sale. Plan for this when you dispose of fully expensed plant or sell a van you claimed the full deduction on, because it can create an unexpected tax bill in a year you weren't expecting one.

How to Claim

You claim full expensing and the 50% first-year allowance through your Company Tax Return (CT600) for the accounting period in which you incurred the qualifying expenditure. The allowances are entered in the capital allowances section of the return. There is no separate application — it is part of your normal Corporation Tax filing.

Keep clear records: the invoice showing the asset is new and unused, the purchase date, the cost, and which allowance you claimed against it. You'll need that detail again if and when you dispose of the asset, because that is when the balancing charge is calculated. Good job and purchase records make this straightforward; vague ones make it painful.

Worked Example

Say your limited company buys a brand-new £40,000 machine during the accounting year and the company pays Corporation Tax at the 25% main rate.

• Qualifying spend on new, unused plant: £40,000
• Full expensing deduction in year of purchase: £40,000 (100%)
• Reduction in taxable profit: £40,000
• Corporation Tax saved at 25%: £10,000

So a £40,000 machine effectively costs your company £30,000 after the tax relief — the £10,000 tax saving lands in the same year you bought it. Now remember the disposal catch: if you later sell that machine for, say, £12,000, you add £12,000 back to taxable profit as a balancing charge, which at 25% claws back £3,000 of the original saving in the year of sale.

Quick Reference: Full Expensing vs 50% FYA vs AIA

This is a general guide, not tax advice. Capital allowances interact with your wider Corporation Tax position, and the right choice depends on your spending pattern and accounting period — confirm the treatment of any large purchase with your accountant before you file.