Full expensing gives a company 100% relief in year one on qualifying plant and machinery, with no annual limit, on expenditure from 1 April 2023. It sits alongside the 50% first-year allowance for special rate assets. It is available to companies only, which is the first of several restrictions that decide whether a given purchase actually qualifies.
What qualifies
The expenditure must be on new and unused main-rate plant and machinery, incurred by a company within the charge to corporation tax, from 1 April 2023. New and unused is the restriction that catches most purchases out: second-hand equipment does not qualify for full expensing, however useful it is, and neither does anything bought for leasing out in most circumstances. Cars are excluded entirely. Special rate expenditure gets the 50% first-year allowance instead, with the remaining half entering the special rate pool.
Why it is not simply better than the annual investment allowance
The annual investment allowance also gives 100%, up to £1 million, and it is available to unincorporated businesses, on second-hand assets and on special rate expenditure. Its cap is the only thing full expensing beats. So for the overwhelming majority of companies, whose qualifying spend is well under £1 million, the annual investment allowance is the simpler route and the two produce the same answer in year one.
The disposal charge is the real difference
When an asset on which full expensing was claimed is sold, the company brings in an immediate balancing charge equal to the full disposal proceeds, rather than deducting the proceeds from a pool. That is a real cash difference for a company that turns its equipment over, because the charge lands in one year rather than being absorbed by a pool balance. Where an asset is likely to be sold within a few years, that is worth weighing before choosing full expensing over the annual investment allowance.
Questions people ask about full expensing capital allowances
Who can claim full expensing?
Companies within the charge to corporation tax. Sole traders and partnerships cannot, and use the annual investment allowance instead.
Does full expensing apply to second-hand equipment?
No. The expenditure must be on new and unused main-rate plant and machinery. Second-hand assets can still get 100% through the annual investment allowance.
What happens when the asset is sold?
An immediate balancing charge arises equal to the full disposal proceeds, rather than the proceeds being deducted from a pool, which is the main practical difference from the annual investment allowance.