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    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Full Expensing

    Full Expensing gives UK Limited Companies (and corporate partners within the charge to Corporation Tax) a 100% first-year allowance on qualifying NEW + UNUSED main-rate plant & machinery + a 50% first-year allowance on special-rate plant & machinery (e.g. integral features). The relief was introduced for capital expenditure on/after 1 April 2023 and made PERMANENT in the Autumn Statement 2023, replacing the temporary 130% super-deduction. Unincorporated businesses (sole traders + partnerships) CANNOT claim Full Expensing, they get the same 100% effect via Annual Investment Allowance up to £1m/year. The asset must be new + unused at acquisition (second-hand excluded); cars are excluded entirely; assets provided for leasing are excluded (though hire purchase generally qualifies).

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    What this relief is, in plain English

    Full Expensing is the headline capital allowance for Limited Companies in the UK from April 2023 onwards. It gives a 100% first-year deduction against Corporation Tax for new + unused plant + machinery purchased for the trade, no waiting, no spreading over years, no balancing acts. The 50% sister-rate for special-rate assets (integral features like electrical systems, lighting, heating/cooling, long-life assets) gives half the cost as an immediate deduction + the remainder enters the special rate pool at 6% Writing Down Allowance. The relief was originally announced as a temporary 3-year measure in Spring Budget 2023 (replacing the super-deduction that ended 31 March 2023), then made PERMANENT in Autumn Statement 2023. It's now treated as a permanent feature of the UK's capital allowances regime alongside Annual Investment Allowance (which sole traders + partnerships claim instead).

    How it works

    100% FYA on main-rate plant & machinery

    A Limited Company purchasing NEW + UNUSED main-rate plant + machinery for its trade can deduct 100% of the cost against Corporation Tax in the year of acquisition. No carry-forward, no spreading, the whole cost reduces taxable profits in year 1. At 25% main rate CT, every £100,000 of qualifying spend reduces the tax bill by £25,000. Main-rate plant + machinery covers most loose plant: manufacturing machinery, IT hardware, office furniture, vehicles other than cars (commercial vans + lorries qualify), tools + equipment, capital software.

    50% FYA on special-rate plant & machinery

    Special-rate assets (integral features in buildings: electrical systems, lighting, heating + cooling, hot/cold water systems; long-life assets ≥25 years; thermal insulation) get a 50% first-year deduction + the remaining 50% enters the special rate pool at 6% WDA going forward. Effectively a 'half-Full-Expensing' for assets that historically got slower relief. A £100,000 special-rate purchase deducts £50,000 in year 1 + the remaining £50,000 attracts 6% × £50,000 = £3,000/year on a reducing balance basis.

    Strict qualifying conditions, new + unused, no cars, no leasing

    Three critical exclusions narrow the scope: (1) **New + unused** at acquisition, second-hand assets fall back on AIA + WDA. (2) **Not a car** of any CO₂ level, cars are explicitly excluded from both Full Expensing + AIA; the only 100% route on cars is the EV First-Year Allowance under CAA 2001 s.45D for new zero-emission cars. (3) **Not provided for leasing**: operating-lease assets are excluded; hire purchase generally qualifies. Plus: must be for a qualifying trade within UK Corporation Tax; the asset must be put to qualifying use within a reasonable time of acquisition.

    Disposal creates a balancing charge

    When a Full-Expensed asset is later sold or scrapped, the disposal proceeds are taxed as a 'balancing charge', added to taxable trading profits in the year of disposal. This contrasts with AIA-claimed assets, where disposal proceeds typically reduce the main pool (less immediate tax). Plan disposal timing: a full-expensed asset sold for £100,000 creates £100,000 of additional taxable profit in that year, taxed at the company's CT rate. For ongoing trading, this typically doesn't matter, the cash from sale funds new capex which gets its own Full Expensing.

    Who qualifies

    Interactions with other reliefs

    Annual Investment Allowance (AIA, £1m/year)

    AIA + Full Expensing cover similar ground but with different rules. For Ltd Cos with qualifying new + unused plant, Full Expensing is preferred (uncapped). AIA's value is for SECOND-HAND assets, integral features (special-rate items above the 50% FYA cap-portion), and as a fallback when items don't qualify for Full Expensing. Sole traders + partnerships use AIA only; Full Expensing isn't available to them.

    Writing Down Allowances (main pool 18%, special pool 6%)

    Disposals from a Full-Expensed asset create a balancing charge (proceeds taxed in full); disposals from main pool reduce the pool by proceeds. **Important April 2026 change:** Main pool WDA rate reduces from 18% to 14% from 1 April 2026, increasing the relative value of Full Expensing for assets purchased BEFORE that date.

    EV First-Year Allowance (CAA 2001 s.45D)

    Cars are excluded from Full Expensing. New zero-emission cars (fully electric or hydrogen) qualify for 100% FYA under the separate s.45D EV regime, extended to 31 March 2027 (CT) / 5 April 2027 (IT). Used EVs do NOT qualify, they go in main pool at 18% (reducing to 14% from April 2026). EV charging point installation also qualifies under separate provisions on the same April 2027 deadline.

    R&D Tax Credits (Merged Scheme)

    Capital expenditure can sometimes qualify for both Full Expensing AND inclusion in R&D-qualifying expenditure if used in R&D activities. However, no double-claiming of the same expenditure across two reliefs. Most companies claim Full Expensing on the capital cost + R&D Tax Credits on the labour + consumables of using the equipment in R&D, different cost bases, different reliefs, both claimable.

    Common mistakes + audit triggers

    Worked example

    Adaeze, Sheffield - Ltd Co director running a precision engineering business (2025/26)

    Adaeze's Sheffield Ltd Co specialises in precision-machined components for aerospace. In 2025/26 she invests in new manufacturing capacity: a new £180,000 CNC machine (main-rate plant), £45,000 of new integral lighting + ventilation for the new bay (special-rate), and £24,000 of new office IT for the expanded team (main-rate). All assets are new + unused at acquisition + put into qualifying trade use within 3 months. The company is paying main-rate Corporation Tax (25%) on profits of around £500,000.

    Calculation: **Step 1: Categorise the assets.** - CNC machine £180,000, NEW main-rate plant, Full Expensing 100% - Office IT £24,000: NEW main-rate plant, Full Expensing 100% - Lighting + ventilation £45,000, NEW special-rate (integral features), 50% FYA + 50% to special rate pool **Step 2: Calculate year-1 deductions.** - CNC machine: 100% × £180,000 = £180,000 immediate deduction - Office IT: 100% × £24,000 = £24,000 immediate deduction - Integral features: 50% × £45,000 = £22,500 immediate deduction; remaining £22,500 enters special rate pool at 6% WDA → £1,350 additional WDA deduction - **Total year-1 capital allowances: £227,850** **Step 3: Tax impact.** - £227,850 reduces taxable profit by that amount - Corporation Tax saving at 25% main rate: 0.25 × £227,850 = **£56,962.50** - Net cost of £249,000 capex after tax relief: £249,000 - £56,962.50 = £192,037.50 (a 23% effective subsidy on the gross investment) **Step 4: Forward-year mechanics.** - The £22,500 in the special rate pool attracts 6% WDA each year going forward (reducing balance basis). Year 2: £1,350; year 3: £1,269; year 4: £1,193... slowly tailing off. - The main-rate-Full-Expensed assets (CNC + IT) have no further allowances, they're fully relieved. On future disposal, proceeds create a balancing charge at that year's CT rate. **Sole trader comparison:** If Adaeze were a sole trader, the same £249,000 capex would have used £249,000 of her £1m AIA cap, giving the same 100% relief on the £224,000 of qualifying spend (the £45,000 integral features still get only £22,500 immediate via the 50% AIA rule). Full Expensing for Ltd Cos vs AIA for sole traders gives nearly identical economics under the £1m cap, the real Full Expensing advantage shows above £1m/year capex.

    Statute reference: Finance (No. 2) Act 2023 + Capital Allowances Act 2001 (as amended) F(No.2)A 2023 ss.7-12; CAA 2001 Chapter 16ZA. HMRC manual: CA23165 (full expensing); CA23166 (50% FYA special rate).

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    I'm a sole trader, can I claim Full Expensing?+
    No, Full Expensing is strictly Limited Companies + corporate partners. As a sole trader (or partnership not incorporated), you claim Annual Investment Allowance (AIA) instead, which gives the same 100% upfront deduction on qualifying plant + machinery up to £1,000,000/year. For most unincorporated businesses, AIA is sufficient (you'd need £1m+ of qualifying expenditure in one year to be constrained). The only practical disadvantage versus Full Expensing is the £1m cap, Full Expensing has no cap. Larger unincorporated businesses with expansion plans sometimes consider incorporation to access Full Expensing on multi-million-pound capital investments.
    I'm buying a second-hand industrial machine for my Ltd Co, does Full Expensing apply?+
    No, Full Expensing requires the asset to be NEW + UNUSED at acquisition. Second-hand assets are excluded entirely. For second-hand plant + machinery you fall back on the £1,000,000 Annual Investment Allowance (AIA) instead, which DOES cover second-hand assets within the cap. If the cost exceeds the AIA cap or you've already used AIA elsewhere in the year, the second-hand machine goes into the main pool at 18% Writing Down Allowance (reducing to 14% from April 2026). For Ltd Cos buying capital equipment, structure purchasing decisions to prioritise NEW assets first (Full Expensing, uncapped) then use AIA capacity for second-hand or for items excluded from Full Expensing.
    I'm leasing equipment via operating lease, can I still claim Full Expensing?+
    No, assets provided for LEASING are explicitly excluded from Full Expensing. Operating leases mean the lessee doesn't legally own the asset, so capital allowances aren't available to them at all (the lessor claims relief instead, under different rules). The position is more nuanced with HIRE PURCHASE: where the structure transfers ownership at the end + the user has long-term economic ownership from inception, the customer can claim Full Expensing on the full asset cost in year 1 (subject to all the standard new/unused + main-rate-pool rules). Always check the contract: 'lease' wording usually disqualifies; 'hire purchase' or 'lease purchase' with end-of-term ownership transfer is the qualifying structure.
    What's the practical difference between Full Expensing and AIA for a Ltd Co?+
    Three differences worth knowing. (1) **Cap**: Full Expensing is uncapped; AIA is capped at £1,000,000/year. For most SME Ltd Cos under £1m capex/year, they're functionally equivalent. (2) **Eligible assets**: Full Expensing requires NEW + UNUSED + not-cars + not-leased; AIA covers second-hand assets, integral features, and other items potentially excluded from Full Expensing. (3) **Disposal mechanics**: Disposing of a Full-Expensed asset creates a balancing charge equal to the disposal proceeds (taxed at the standard CT rate); disposing of an AIA-claimed asset reduces the main pool by the disposal value (typically less immediate tax). Strategy: use Full Expensing FIRST on qualifying new assets (uncapped saving), then use AIA capacity on second-hand or special-rate items + integral features.

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