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What is full expensing and does it help a small company?

Seldom, below your AIA limit.

Full expensing takes 100% of the cost of new main rate equipment off your company's profits, with no cap. The Annual Investment Allowance does the same up to £1,000,000 a year (less for a shorter period), and covers second-hand items too.

Published

At a glance

Who can claim
Companies only
What it leaves out
Cars, second-hand items and most equipment for leasing. New, unused get 50% instead
When you sell
A item brings a , usually the whole sale value

Sources

This entry is general information for directors of UK private limited companies, not advice about a particular company.

Does this apply to me?

  • Your company buys new, unused main rate equipment. Yes, unless an exclusion applies, such as a car or equipment for leasing out.

  • The item is second-hand. No. The can still cover it.

  • The item is a special rate item, such as solar panels. Only a 50% allowance, on the same conditions, not . The Annual Investment Allowance can give 100%.

  • Your company spends less than its Annual Investment Allowance limit. Full expensing adds nothing to the for that year. See "Why the AIA usually does the same job" below.

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What to do

  1. Add up your equipment spending for the year. If it is within your limit, that allowance can give 100% on all of it.

  2. Choose one allowance for each cost. You cannot claim two allowances on the same spending.

  3. Claim for the period you bought the item, on your .

  4. When you sell a fully expensed item, include the balancing charge for the period you sell it.

Sources

How it works

Full expensing gives 100% on new main rate equipment

lets a company take 100% of the cost of new off its profits in the year it buys it. Only companies can claim it. There is no cap on the amount.

The spending must be on or after 1 April 2023, and the item must be . Buying from a dealer is fine. So is a little use for testing, or demonstration.

It is permanent. A 2023 policy paper said so, and the law sets a start date with no end date. Your company can claim all of the cost or only part of it.

For example

Say Bramley Studio Ltd buys £5,400 of new computers and studio kit in 2026.

Full expensing
100% × £5,400
£5,400
Comes off profits for 2026
£5,400

Sources

The detail The exact rules

  • Act 2001, section 45S: expenditure is first-year qualifying expenditure if it is incurred on or after 1 April 2023, by a company , on plant or machinery which is unused and not second-hand, and it is not excluded by section 45T or section 46.

  • Section 52: the is 100% for section 45S expenditure that is not , and 50% for section 45S expenditure that is. A claim may be for the whole or a part of the expenditure.

  • HMRC's Capital Allowances Manual (CA23174AA): the Finance (No.2) Act 2023 introduced full expensing for main rate plant or machinery, and a 50% allowance for special rate . Main rate expenditure is expenditure which is not special rate expenditure.

  • CA23174AB: plant bought from a dealer rather than a manufacturer, or given limited use for testing, delivery or demonstration, can still be unused and not second-hand.

  • The policy paper of 22 November 2023 says the measure makes full expensing and the 50% allowance permanent, and that the qualifying amount is uncapped. GOV.UK: only companies can claim full expensing and the 50% first-year allowance.

Sources

Special rate items get 50%

Special rate items cannot get full expensing. They can get a 50% first-year allowance instead, on the same conditions. They include parts of a building that count as "", items with a long life, solar panels, and insulation added to a building.

For example

Say Bramley Studio Ltd spends £2,000 on new solar panels for its studio.

50% first-year allowance
50% × £2,000
£1,000
Comes off profits this year
£1,000

If instead

Bramley claims the Annual Investment Allowance on them instead.

Comes off profits this year
£2,000

Sources

The detail The exact rules

  • CA23174AA: special rate expenditure may qualify for the 50% first-year allowance but does not qualify for full expensing. Some cars are on the special rate list, but cars are excluded from both allowances.

  • GOV.UK lists the items that only get the 6% special rate of : integral features, long-life items, solar panels, thermal insulation added to a building, and cars above an emissions threshold.

  • CA23084: the may be claimed on special rate expenditure.

Sources

What full expensing leaves out

Cars never qualify. Nor does most equipment your company buys to lease out. Spending in the period your company stops for good is left out too.

Full expensing is also refused for artificial deals. This applies where a main aim of the deal is to get it, and the deal is contrived or lacks a real purpose.

Sources

The detail The exact rules

  • CA23174AC: all the general exclusions in section 46(2) apply to full expensing, with an exception from the leasing exclusion for background plant and machinery. Cars are not eligible. Plant or machinery for leasing is excluded.

  • Section 46(2): general exclusion 1, expenditure in the chargeable period in which the is permanently discontinued; 2, the provision of a car; 6, plant or machinery for leasing.

  • Section 45T: expenditure is excluded if incurred in connection with disqualifying arrangements. These are arrangements where the main purpose, or one of the main purposes, is a tax advantage connected with full expensing, and it is reasonable to conclude they are contrived, abnormal or lacking a genuine commercial purpose, or to regard them as circumventing the intended limits of relief.

Sources

Why the AIA usually does the same job

The Annual Investment Allowance also gives 100% of the cost, up to £1,000,000 for a 12-month period and less for a shorter one. It covers almost all equipment, including second-hand and special rate items. You cannot claim two allowances on the same spending.

Our working: if your spending stays within your Annual Investment Allowance limit, that allowance gives 100% on everything full expensing covers. It also gives 100% on items where full expensing gives 50% or nothing. So full expensing adds most once your spending passes the limit, because it has no cap.

For example

Say £1,000 of Bramley Studio Ltd's £5,400 of kit is second-hand.

Full expensing on the new kit
£5,400 − £1,000
£4,400
Annual Investment Allowance on the second-hand item
£1,000
Comes off profits this year
£5,400

Claiming the Annual Investment Allowance on all £5,400 gives the same total, with one allowance.

Sources

The detail The exact rules

  • Section 51A: the AIA maximum is £1,000,000 (text in force on 16 September 2026), increased or reduced in proportion for a chargeable period of more or less than a year.

  • CA23084: the AIA is available on virtually all plant and machinery qualifying expenditure, including special rate expenditure. Its five general exclusions do not include second-hand items. A company may allocate it in any way it chooses, and HMRC expects companies commonly to allocate it against the spending that would otherwise receive the lowest rate of allowance.

  • GOV.UK: you cannot claim more than one allowance against the same expenditure. Claim first-year allowances on any amount above the AIA.

Sources

Selling a fully expensed item brings a balancing charge

When your company sells an item it fully expensed, it has a "". This is an amount brought into its tax calculation for the period of the sale.

The charge is a share of the . The share is the cost that was fully expensed, divided by the item's total cost that had any first-year allowance or went into a . If full expensing covered the whole cost, the share is 1, so the charge is the whole sale value.

For a special rate item that had the 50% allowance on its whole cost, the charge is half the sale value.

For example

Say Bramley Studio Ltd fully expensed all £5,400 of its kit, then sells it on 30 June 2028 for £1,500.

Share fully expensed
£5,400 ÷ £5,400
1
Balancing charge for 2028
1 × £1,500
£1,500

Sources

The detail The exact rules

  • Section 59A: if a company that had full expensing on expenditure that is not special rate must bring a disposal value into account for an , it is liable to a balancing charge for that period. The charge is the relevant proportion of the disposal value: the expenditure that had the allowance, divided by the total expenditure that has had that or any other first-year allowance or has been pooled.

  • CA23174AD: the charge arises in the accounting period in which the disposal event occurs. The disposal value is determined in the normal way. Where full expensing was claimed on the full cost, the proportion is 1 and the charge is the whole disposal value. None of the disposal receipts then goes to the main pool.

  • Section 59B and CA23174AE: for special rate items, the expenditure that had the 50% allowance is halved before dividing. A claim on the full cost gives a charge of half the disposal value, and the rest goes to the pool in the normal way.

  • Section 61, Table item 1, and CA23250: on a sale, the disposal value is the net proceeds, plus any insurance money and other capital compensation received. For an item that had the AIA, section 61 still requires the disposal value to be brought into account.

Sources

Consequences

If you get it wrong

You claim for an item that does not qualify. Spending that fails a condition, or falls in an exclusion, gets no .

Your company bought the item partly for other purposes. The claim must be cut to a fair amount, taking account of that other use. Your as part of your taxed pay is different. HMRC treats that spending as for the , though it can still restrict the claim in some cases.

Sources

Less common situations

The 40% first-year allowance. This applies to new, bought on or after 1 January 2026. It is aimed at cases where other first-year allowances are not available, such as equipment for leasing. The 60% not relieved can go into the pool from the next period on.

Your period crosses 1 April 2026. then need a . New main rate equipment fully expensed at 100% leaves nothing in the pool, so the hybrid rate does not touch it. Any balance already in a pool still gets the hybrid rate.

Software. HMRC treats software as plant. But a company's on software falls under separate rules for , unless it chooses otherwise.

Sources

The detail The exact rules

  • Section 45U: expenditure is first-year qualifying expenditure if it is incurred on or after 1 January 2026, is not , is on unused and not second-hand , and is not excluded by section 45V or section 46. Section 45U is headed as covering cases not falling within section 45S. The rate is 40% (section 52).

  • CA23195A: the 40% allowance is available to persons or Income Tax. Cars are not eligible, and the leasing exclusion is disapplied in certain circumstances. The policy paper aims it at cases where other are not available, such as assets bought for leasing and by unincorporated businesses.

  • Section 58(5) and (6), and CA23110: the balance after a 40% or 50% allowance cannot be pooled in the period the expenditure is incurred. It may be pooled in the following or a later period, and at the latest in the period of disposal.

  • Writing down allowances: 14% for chargeable periods beginning on or after 1 April 2026 for Corporation Tax, 18% before then back to 1 April 2012; 6% special rate from 1 April 2019 (CA23220). For a period including 1 April 2026, Finance Act 2026, section 28, gives X = (18 x BRD/CP) + (14 x /CP), rounded up to two decimal places.

  • Whether an item that qualifies for may take the 40% allowance instead is not covered here.

Sources

Worked example: Bramley Studio Ltd

Say Bramley Studio Ltd buys £5,400 of new computers and studio kit in its year to 31 December 2026. It is not a car or for leasing, and Bramley uses it only in its . This purchase is not part of Bramley's own 2026 figures, where of £1,800 is matched by capital allowances of £1,800.

Which allowance for 2026

  • New kit bought in 2026

    £5,400

    New, unused and main rate, so it meets the full expensing conditions

  • Full expensing at 100%

    £5,400

    100% × £5,400

  • Annual Investment Allowance instead

    £5,400

    Well within the £1,000,000 limit

  • Deducted for 2026

    £5,400

    One allowance only. The deduction is the same either way

Sources

Allowance and depreciation

  • Depreciation on the kit in the accounts

    £1,080

    Say the accounts spread its cost over 5 years: £5,400 ÷ 5. Added back for tax

  • Allowance deducted

    £5,400

    Full expensing or the Annual Investment Allowance

  • Extra deducted for tax this year

    £4,320

    £5,400 − £1,080

Sources

If Bramley instead claims the 40% allowance

  • 40% first-year allowance

    £2,160

    40% × £5,400. For comparison only

  • Left to pool from 2027

    £3,240

    £5,400 − £2,160. It cannot go into the pool for 2026

Sources

Bramley has and the available, so the 40% allowance gives it a smaller deduction this year.

If Bramley sells the kit on 30 June 2028 for £1,500, the for 2028 is £1,500, as shown above. Had it claimed the Annual Investment Allowance instead, the £1,500 would still be brought into account for 2028.

Sources

Not covered here

The 100% allowances for electric cars and charging points, and balancing adjustments on . Also leased or items, the intangible asset rules for software, and penalties for a wrong claim. See Annual Investment Allowance, revenue or capital spending and a laptop, phone or home office.

Where this comes from

79 official sources. Open a group to see them.

The law 22 sources
HMRC 30 sources
GOV.UK 22 sources
Companies House 2 sources
FRC 3 sources

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