Comparison Guide · 2026-07-03
Annual Investment Allowance vs Full Expensing UK 2026/27
The Annual Investment Allowance gives 100% first-year tax relief on qualifying plant and machinery spending up to £1 million per year, available to sole traders, partnerships and companies alike. Full expensing offers unlimited 100% first-year relief with no cap, but is only available to companies subject to Corporation Tax (not unincorporated businesses), making it most valuable for larger companies with capital spending well above the £1 million AIA cap.
At a Glance
| Feature | Annual Investment Allowance (AIA) | Full Expensing |
|---|---|---|
| Spending cap | £1,000,000 per year across the group | No cap — 100% relief on unlimited qualifying spend |
| Who can claim | Sole traders, partnerships and companies | Companies within the charge to Corporation Tax only |
| What qualifies | Most plant and machinery, including some integral features and long-life assets | New and unused qualifying plant and machinery (main rate pool assets) only |
| Used assets | Can qualify for AIA | Does not qualify for full expensing — must be new, unused |
| Effect of exceeding the cap | Spending above £1m goes into the standard writing-down allowance pools (18%/6% per year) | Not applicable — no cap to exceed |
| Balancing charge on disposal | Standard balancing charge/allowance rules on disposal | Full disposal value taxed as a balancing charge, since 100% relief was already given upfront |
When Annual Investment Allowance (AIA) Wins
- You are a sole trader, partnership, or unincorporated business (full expensing is not available to you)
- Your qualifying capital spending in the year is at or below £1 million
- You are buying used or second-hand qualifying equipment
When Full Expensing Wins
- You are a company with capital spending exceeding £1 million in qualifying new plant and machinery
- You are buying only new, unused qualifying assets
- You want unlimited first-year relief with no annual cap to manage
Frequently Asked Questions
Can I claim both the Annual Investment Allowance and full expensing on the same asset?
No — for companies, you choose the most beneficial route for each qualifying asset, but the two reliefs are not both claimed on the same expenditure. In practice, most companies use full expensing for new, unused main-pool assets (since it has no cap) and the AIA for anything that does not qualify for full expensing (e.g. used equipment or special rate pool assets), maximising overall relief.
Does full expensing apply to used or second-hand equipment?
No — full expensing is restricted to new and unused qualifying plant and machinery; if you buy used equipment, you would instead need to rely on the Annual Investment Allowance (if you have unused AIA available) or the standard writing-down allowance pools.
What happens if I sell an asset that received 100% full expensing relief?
When you dispose of an asset that received full expensing, the full disposal proceeds are typically brought into account as a balancing charge (taxable as if it were profit), since you already received 100% of the cost as tax relief upfront — this differs from standard capital allowances pools, where only the difference between the pool value and sale proceeds is adjusted.
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Is the Annual Investment Allowance available to sole traders?
Yes — unlike full expensing, which is restricted to companies within the charge to Corporation Tax, the Annual Investment Allowance is available to sole traders, partnerships (of individuals) and limited companies alike, up to the same £1 million annual cap shared across a group of connected businesses.
What qualifies as "plant and machinery" for these allowances?
This broadly includes equipment, machinery, vans, computers, office furniture, and certain integral features of buildings (electrical systems, heating, water systems), but excludes cars (which have separate, lower capital allowance rates) and the structure of the building itself — always check HMRC's specific guidance or consult an accountant, as the categorisation rules are detailed.
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Disclaimer: This comparison is general information, not personal financial advice. Figures reflect the 2026/27 UK tax year and can change. Always check current HMRC/gov.uk guidance or speak to a regulated adviser before making a decision.