Full Expensing for Limited Companies: How 100% Relief Works

Full expensing allows a UK limited company to deduct 100% of the cost of qualifying new plant and machinery from its taxable profits in the year of purchase, with no upper limit on the amount claimed. It sits alongside the annual investment allowance, which also gives 100% relief but is capped at £1 million a year and, unlike full expensing, covers second-hand assets and unincorporated businesses. Understanding which of the two applies to a given purchase is what separates a company that claims its relief efficiently from one that leaves money with HMRC. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, sees companies default to the annual investment allowance when full expensing would have preserved the £1 million cap for something else entirely.

This article explains what each relief covers, how they interact, what happens on disposal, and how to sequence claims across a mixed year of capital spending.

Key Takeaways

• Full expensing gives UK limited companies a 100% first-year deduction on qualifying new and unused main rate plant and machinery, with no annual monetary cap.
• The annual investment allowance provides 100% relief on up to £1,000,000 of qualifying expenditure a year and, unlike full expensing, covers second-hand assets, unincorporated businesses and most special rate assets.
• The 50% first-year allowance gives limited companies half the cost of new special rate assets in year one, with the remaining 50% entering the special rate pool at 6% writing down allowance.
• Selling an asset on which full expensing was claimed triggers an immediate balancing charge equal to 100% of the disposal proceeds, added straight to taxable profit.
• Cars are excluded from both full expensing and the annual investment allowance, and instead attract writing down allowances at 14% or 6% depending on CO2 emissions, with 100% first-year allowances available for new zero-emission cars.
• With corporation tax at 25% on profits above £250,000, every £100,000 of qualifying expenditure claimed in full is worth £25,000 in tax saved, rising to £26,500 where it displaces profit taxed at the 26.5% marginal rate.

What is full expensing and which companies can claim it?

Full expensing is a 100% first-year capital allowance available only to companies within the charge to UK corporation tax, covering new and unused plant and machinery that would otherwise go into the main capital allowances pool. There is no monetary ceiling, which makes it the most generous capital allowance in the UK regime.

The eligibility rules are narrower than the headline suggests. The asset must be new and unused, so second-hand machinery is excluded entirely. It must be plant and machinery, so land, buildings and structures fall outside. Cars are specifically excluded, as are assets bought for leasing to others, subject to limited exceptions. And because the relief is restricted to companies, sole traders and partnerships cannot use it at all.

Qualifying items in practice include manufacturing and production equipment, computers and servers, office furniture, commercial vehicles such as vans and lorries, tools, and most fixtures integral to a trade where they fall in the main pool. For special rate assets such as integral features in a building, thermal insulation or long-life assets, full expensing does not apply, but the separate 50% first-year allowance for companies does.

How does full expensing interact with the annual investment allowance?

The annual investment allowance UK 2026 rules and full expensing both deliver 100% relief, so the practical question is which one to use first when a company has both available. The general answer is to apply the annual investment allowance to expenditure that cannot qualify for full expensing, and use full expensing for everything else.

That ordering matters because the AIA £1 million cap is a finite annual resource, while full expensing is unlimited. Spending the cap on new main rate plant, which full expensing would have covered anyway, wastes it. The AIA should instead absorb second-hand equipment, special rate assets like air conditioning or electrical systems, and any expenditure by a group member that cannot use full expensing.

Two further points affect the calculation. The £1 million annual limit is shared across groups of companies and companies under common control, so a group cannot claim £1 million per subsidiary. And where an accounting period is shorter than 12 months, the AIA limit is reduced proportionately, so a nine-month period carries a £750,000 cap.

For the full framework covering pools, rates and claim mechanics, see our guide to the Annual Investment Allowance.

Worked example: claiming relief across a mixed year of spending

A limited company with taxable profits of £600,000 for the year ending 31 March 2027 spends £1,400,000 on capital assets: £900,000 on new production machinery, £300,000 on second-hand plant bought from a competitor, and £200,000 on new integral features in its warehouse.

The efficient sequence claims full expensing on the £900,000 of new machinery, which is uncapped, then applies the annual investment allowance to the £300,000 of second-hand plant and the £200,000 of integral features, using £500,000 of the £1 million cap. Total relief in year one is the full £1,400,000.

Taxable profit falls from £600,000 to nil, and £800,000 of loss is available to carry back or forward. The corporation tax saved in the year is £150,000 at the 25% main rate, with further value from the losses.

The inefficient sequence claims the annual investment allowance on the new machinery first, using £900,000 of the £1,000,000 cap on expenditure that full expensing would have relieved for nothing. Only £100,000 of AIA remains for the integral features, leaving £100,000 of them on the 50% first-year allowance and the £300,000 of second-hand plant on the 14% writing down allowance. First-year relief falls to £1,092,000, deferring £308,000 into later years. Year-one corporation tax is nil either way, because relief exceeds profit on both routes, but the deferred relief is worth around £77,000 whenever it is eventually used. The expenditure is identical; only the ordering of the claim differs.

What happens when a company sells an asset it fully expensed?

Selling an asset on which full expensing was claimed produces an immediate balancing charge equal to 100% of the disposal proceeds, which is added directly to taxable profit in the period of sale. This is harsher than the normal capital allowances treatment, where proceeds are simply deducted from the relevant pool and any charge is spread through reduced writing down allowances.

A company that fully expensed £80,000 of machinery and later sells it for £30,000 adds the whole £30,000 to its taxable profits, generating a corporation tax charge of £7,500 at 25%. Where a 50% first-year allowance was claimed on a special rate asset, half the proceeds create an immediate balancing charge and the other half is deducted from the special rate pool.

The practical implication is cash flow planning. Companies with high asset turnover, or those expecting to sell equipment within a few years, should model the balancing charge before assuming full expensing is automatically the best route. Capital allowances limited company planning is about the timing of relief across the whole holding period, not just the year of purchase.

How should a company time capital expenditure to maximise relief?

Capital allowances are given for the accounting period in which the expenditure is incurred, which is normally the date the obligation to pay becomes unconditional rather than the date cash leaves the bank. Timing a purchase either side of a year end therefore shifts an entire year of relief.

Three timing decisions repay attention. First, where profits will exceed £250,000 in one period and fall below £50,000 in the next, accelerating expenditure into the higher-rate period converts relief worth 19% into relief worth 25%. Second, where an accounting period is short, the reduced AIA limit may justify deferring second-hand purchases until the following full period. Third, assets acquired under hire purchase qualify once brought into use, so bringing equipment into service before the year end secures the claim even where instalments continue.

Record keeping supports all of it. A capital allowances limited company claim needs invoices identifying the asset as new where full expensing is claimed, and a fixed asset register that tracks which relief was applied to which asset so that disposals are handled correctly years later. Claims are made on the CT600 return, which must be filed within 12 months of the accounting period end.

Frequently Asked Questions

Can a sole trader claim full expensing?

No. Full expensing is available only to companies within the charge to UK corporation tax, so sole traders and partnerships cannot claim it. Unincorporated businesses should use the annual investment allowance instead, which gives the same 100% relief on up to £1,000,000 of qualifying expenditure a year and also covers second-hand assets.

Does full expensing cover second-hand equipment?

No. Full expensing applies only to new and unused plant and machinery, so second-hand or refurbished equipment is excluded. Second-hand assets can still receive 100% relief through the annual investment allowance, subject to the £1,000,000 annual cap, which is why the AIA should be reserved for expenditure that full expensing cannot reach.

How much is the annual investment allowance in 2026?

The annual investment allowance is £1,000,000 of qualifying expenditure per 12-month accounting period, giving 100% first-year relief. The limit is shared between groups of companies and businesses under common control, and is reduced proportionately for accounting periods shorter than 12 months, so a six-month period carries a £500,000 limit.

Can I claim full expensing on a company car?

No. Cars are excluded from both full expensing and the annual investment allowance. Company cars instead attract writing down allowances at 14% for emissions of 50g/km or less and 6% above that. New and unused zero-emission cars qualify for a separate 100% first-year allowance, and new vans and commercial vehicles do qualify for full expensing.

What happens if my company makes a loss after claiming full expensing?

Claiming full expensing can create or increase a trading loss, which the company can carry back 12 months against earlier profits, surrender to group companies, or carry forward against future profits. There is no requirement to restrict the claim to available profits, though restricting it deliberately is sometimes better where future profits will be taxed at 25% rather than 19%.

How Blue Tick Can Help

Blue Tick Accountants reviews capital expenditure before and after purchase to establish which assets qualify for full expensing, which should absorb the annual investment allowance, and how the ordering affects corporation tax across multiple periods. Blue Tick also handles fixed asset registers, balancing charge planning on disposals and the CT600 claim itself. Head to our website and book a meeting now.

Conclusion

Full expensing and the annual investment allowance both deliver 100% relief, but they are not interchangeable, and the order in which a company claims them decides how much tax it pays this year rather than in five years' time. Reserve the £1 million cap for second-hand and special rate assets, use uncapped full expensing for new main rate plant, and model the balancing charge before disposing of anything you fully expensed. Review planned capital spend before your accounting year end, while the timing is still within your control.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners, landlords and the self-employed across the UK. Leon advises on corporation tax, capital allowances and year-end planning for owner-managed businesses. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: Which Assets Qualify for the Annual Investment Allowance?.

Related reading: AIA vs Writing Down Allowance: How to Choose the Most Tax-Efficient Route.