What is full expensing for UK businesses?

Full answer

Full expensing was introduced from 1 April 2023 as a permanent measure to replace the temporary super-deduction (which gave 130% deductions on qualifying assets until March 2023). It gives companies a 100% first-year capital allowance on new qualifying plant and machinery, meaning the full cost can be deducted from taxable profits in the year of purchase, with no annual cap. This is significantly more generous than the default 18% or 6% writing-down allowances that apply to most assets under the main pool or special rate pool respectively. For example, a company spending £500,000 on qualifying machinery can deduct all £500,000 from its taxable profits immediately, saving £125,000 in corporation tax at the 25% main rate in the same year. Without full expensing, the company would write down 18% each year, receiving tax relief very slowly over many years. Full expensing applies to new (not second-hand) plant and machinery in the main pool -- things like computers, equipment, commercial vehicles and machinery. A 50% first-year allowance applies to special rate pool assets, such as long-life assets and integral building features (lifts, heating, cooling systems). Assets used partly for non-business purposes or already used before purchase do not qualify. Crucially, full expensing is available only to companies subject to corporation tax. Sole traders and unincorporated partnerships cannot use it -- they use the Annual Investment Allowance (AIA), which covers up to £1 million per year at 100% and is available to all business types. If a company later sells an asset on which it claimed full expensing, a balancing charge arises, recovering some or all of the tax relief. Use a corporation tax calculator to model the impact of full expensing on your current-year tax bill.

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