Full Expensing: Uncapped 100% Relief, Companies Only

1. What Full Expensing Is

Full Expensing gives a company a 100% first-year deduction on qualifying new plant and machinery. There is no upper limit on the spend, a company investing £5 million in qualifying kit gets the full £5 million deducted in the year of purchase. Introduced from 1 April 2023 and made permanent in the November 2023 Autumn Statement, it is now a standing feature of the capital allowances regime.

The relief is available only to companies within the charge to Corporation Tax. Sole traders, partnerships and LLPs cannot claim Full Expensing and must rely on AIA and writing-down allowances instead.

2. What Qualifies

Full Expensing covers new and unused main-rate plant and machinery. That includes production machinery, commercial vehicles (vans, lorries), computer and IT equipment, office furniture, and most tools and equipment used in a trade. "New" means unused, second-hand assets are excluded, even if in good condition.

The asset must be owned by the company. Assets held on operating lease do not qualify because the company is not the owner for tax purposes. Hire purchase arrangements generally qualify because legal title transfers at the end, and HMRC treats the lessee as the owner from the start of the HP contract.

3. 50% First-Year on Special Rate

The Full Expensing regime includes a 50% first-year allowance (FYA) on qualifying new special-rate plant and machinery. Special-rate items include integral features (electrical systems, cold water, heating, air conditioning, lifts), long-life assets (useful economic life of 25+ years), and thermal insulation.

A £100,000 qualifying special-rate purchase under the 50% FYA gives £50,000 of relief in year one; the remaining £50,000 goes into the special-rate pool for writing-down allowances at 6% per year. For most SMEs, AIA at 100% on the whole £100,000 is preferable to the 50% FYA, provided the AIA cap has headroom.

4. Full Expensing vs AIA

For most SMEs, AIA delivers the same outcome as Full Expensing because annual spend is below £1 million. Full Expensing matters when the annual spend exceeds £1 million, when the AIA cap is already absorbed by earlier purchases in the year, or when the purchaser wants certainty on new main-rate items without needing to track AIA headroom.

5. Disposals and the Clawback

Full Expensing comes with a specific disposal rule: when an asset on which Full Expensing was claimed is later sold, the disposal proceeds are treated as a balancing charge, taxable as trading income, in the period of disposal. This is a simple clawback: the company took the full deduction upfront, so the full disposal proceeds come back into charge.

This differs from AIA, where the disposal proceeds reduce the main-rate pool rather than generating a standalone balancing charge. For assets with meaningful resale value that will be sold within a few years, the clawback under Full Expensing should be factored into the decision. For assets held until they are scrapped or have minimal residual value, the difference is immaterial.

6. Practical Use Cases

Full Expensing delivers its largest practical benefit in three situations: manufacturers or contractors investing in production or site equipment above £1 million a year; fast-growing SMEs where the AIA cap is consumed by one big purchase and a second one follows in the same period; and group structures where the shared £1 million AIA is insufficient for the combined spend.

For the typical owner-managed SME spending £50,000 to £400,000 a year on plant and equipment, AIA is simpler, covers used kit, and does the same work. The election between the two is rarely controversial, both give 100% relief in year one, but getting the pool classification right on the CT return matters for HMRC's enquiry risk and for the balancing charge position on later disposal.