Pillar Guide - Business Tax - 2026/27

Full Expensing 2026/27: 100% Capital Allowances for Companies

Full expensing lets companies deduct 100% of the cost of new plant and machinery immediately, with no upper limit. This guide explains how it works, how it differs from the Annual Investment Allowance, and the balancing charge that applies when you later sell the asset.

Updated 3 July 2026

Key Facts

Relief rate: 100% of qualifying cost, no cap

Who can claim: Companies only, not sole traders

Asset condition: New and unused only

On disposal: Full proceeds are a balancing charge

What Is Full Expensing?

Full expensing is a 100% first-year capital allowance for companies that invest in new plant and machinery. Introduced from 1 April 2023 as a temporary replacement for the old super-deduction, it was made permanent following the 2024 Autumn Statement. It applies only to companies within the charge to Corporation Tax, and lets the entire qualifying cost be deducted from taxable profits in the period the expenditure is incurred, rather than spread out over years through standard writing down allowances.

Full Expensing vs the Annual Investment Allowance

Full expensing and the Annual Investment Allowance (AIA) both give 100% relief, but they are not the same thing and businesses often confuse them.

Cap: AIA is capped at £1 million a year; full expensing has no cap at all
Who can claim: AIA is open to sole traders, partnerships and companies; full expensing is companies only
Condition of asset: AIA covers new and second-hand assets; full expensing covers new and unused assets only
Practical use: most companies use AIA first for spending up to £1 million, then rely on full expensing for larger capital programmes or when AIA capacity has already been used elsewhere in a group

What Qualifies

New and unused plant and machinery that would normally go into the main rate pool (18% WDA), qualifying for the full 100% deduction
New special rate assets, such as integral features of buildings, qualifying for a 50% first-year allowance with the remainder in the special rate pool
Excludes cars, which follow the separate car capital allowances rules based on CO2 emissions
Excludes assets bought for leasing out to another business, in the same way the AIA does
Excludes second-hand assets, which must instead use the AIA or standard writing down allowances

Disposal and Balancing Charges

Because full expensing gives 100% relief immediately, the tax written-down value of the asset is treated as nil. When the asset is later sold, scrapped for value, or otherwise disposed of, the full disposal proceeds (not just the amount above written-down value) are added back to taxable profits as a balancing charge. This is different from the ordinary capital allowances pools, where disposal proceeds simply reduce the pool balance and only trigger a balancing charge if the pool itself goes negative.

For assets expected to have a meaningful resale value within a few years — vehicles used in a trade, for example, though cars themselves do not qualify — this makes it worth modelling the tax cost of a future sale before claiming full expensing, since it can claw back a large part of the relief in one go.

Worked Example

A manufacturing company buys £1.4 million of new production machinery in the 2026/27 accounting period. It uses its £1 million Annual Investment Allowance first, and claims full expensing on the remaining £400,000, giving 100% relief on the entire £1.4 million spend in the same period rather than spreading relief over many years of writing down allowances.

Four years later, the company sells the machinery for £250,000 as part of an upgrade. Because full expensing was claimed and the written-down value is nil, the entire £250,000 is added back to taxable profits as a balancing charge in the year of sale, rather than the smaller amount that would have arisen if the machinery had instead been in the ordinary capital allowances pool.

Common Pitfalls

Assuming sole traders can claim it. Full expensing is for companies only — unincorporated businesses must rely on the Annual Investment Allowance instead.
Claiming on second-hand assets. Full expensing is restricted to new, unused plant and machinery; second-hand purchases need the AIA or standard allowances.
Not planning for the balancing charge. Selling an asset that received full expensing can trigger a large, unexpected tax charge on the full sale proceeds.
Confusing it with the AIA cap. Businesses sometimes think full expensing is capped at £1 million like the AIA — it is not, which is exactly why it matters for large capital programmes.
Forgetting the loss position. A large full expensing claim can create or increase a trading loss, which needs planning around group relief, loss carry-back or carry-forward.

Frequently Asked Questions

What is full expensing?

Full expensing is a capital allowance that lets companies deduct 100% of the cost of qualifying new plant and machinery from their taxable profits in the same accounting period the expenditure is incurred, rather than spreading the relief over several years through writing down allowances. It was introduced from 1 April 2023 and made a permanent feature of the capital allowances regime from the 2024 Autumn Statement.

How is full expensing different from the Annual Investment Allowance (AIA)?

The AIA gives 100% relief on qualifying plant and machinery up to a £1 million annual cap, is available to sole traders, partnerships and companies, and can be claimed on both new and second-hand assets. Full expensing has no cap at all, but it is available only to companies (not sole traders or partnerships) and only on brand-new, unused assets. In practice, most companies use the AIA first for spending within £1 million and rely on full expensing for larger capital programmes or where AIA has already been used up.

Can sole traders or partnerships claim full expensing?

No. Full expensing is restricted to companies within the charge to Corporation Tax. Sole traders and partnerships can still claim 100% relief on qualifying new and second-hand plant and machinery through the Annual Investment Allowance, up to its £1 million annual limit.

Show 7 more questions

Does full expensing apply to second-hand equipment?

No. Full expensing only applies to new and unused plant and machinery. If a company buys second-hand equipment, it must claim relief through the Annual Investment Allowance instead (within the £1 million cap) or through ordinary writing down allowances if the AIA has already been used.

What happens when I sell an asset I claimed full expensing on?

When you dispose of an asset that received full expensing, you must bring the full disposal proceeds into your taxable profits as a balancing charge, rather than only a proportion. This differs from the standard capital allowances pools, where disposal proceeds simply reduce the pool balance. Because the balancing charge can be significant, it is worth modelling the tax cost of an eventual sale before claiming full expensing on a high-value asset you expect to sell on relatively quickly.

Are cars eligible for full expensing?

No. Cars are excluded from full expensing, in the same way they are excluded from the Annual Investment Allowance. Cars instead go into the main rate pool (18% writing down allowance) or the special rate pool (6%) depending on CO2 emissions, unless they are new and zero-emission, in which case a separate 100% first-year allowance for zero-emission cars can apply.

What is the 50% first-year allowance for special rate assets?

Alongside full expensing, companies can claim a 50% first-year allowance on new special rate assets — broadly, items that would otherwise qualify for the 6% special rate pool, such as integral features of buildings and long-life assets. The remaining 50% goes into the special rate pool and is written down at 6% a year in later periods.

Can full expensing create a loss that is carried forward?

Yes. Because full expensing gives a large, immediate deduction, it can turn a profitable year into a loss for tax purposes. That loss can generally be carried back one year, carried forward against future profits, or in some cases surrendered as group relief to a connected company, so the timing of large capital expenditure can be planned around the wider group's tax position.

Is full expensing optional?

Yes. A company can choose not to claim full expensing on a particular asset and instead use the Annual Investment Allowance or standard writing down allowances. This flexibility matters where a company expects an early disposal and wants to avoid a large balancing charge, or where it prefers to preserve taxable profits in the current period for another reason, such as protecting a small profits rate position.

Does full expensing include assets bought for leasing to another business?

No. Like the Annual Investment Allowance, full expensing generally excludes plant and machinery bought specifically for leasing out to another party. This mainly affects leasing and asset-finance companies, which typically need to fall back on standard writing down allowances for equipment held for lease rather than for use in their own trade.

Calculators for this topic

Dividend Tax Calculator

Calculate tax on dividends received from UK companies for 2025/26.

Calculate your Self-Employed Tax

Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.

VAT tool

Add or remove VAT from any amount. Supports 20%, 5% and 0% UK VAT rates.

Check your R&D Tax Relief

Estimate UK R&D tax credit benefit under the SME scheme, merged RDEC scheme or pre-April-2023 SME rules.

About the author

CalcHub Editorial

Editorial Team

The CalcHub Editorial team researches, writes and reviews every calculator, guide and article published on CalcHub.uk. Our remit is to translate the rules that govern UK personal finance — income tax bands, National Insurance thresholds, stamp duty slabs, Ofgem price caps, NHS health metrics, DVLA road-tax bands — into tools and explanations that anyone can use in under a minute. Every figure we publish is traced to a primary source: HMRC, Revenue Scotland, the Welsh Revenue Authority, Land & Property Services NI, DWP, Ofgem, the Bank of England, ONS, NHS or DVLA. We cross-check our calculator outputs against HMRC reference calculators to within £1 of accuracy where they exist, and against worked examples in legislation where they do not. The team conducts a full content review every 6 April when the UK tax year turns over, with event-driven updates within 7 days of a Budget, Autumn Statement, MPC base-rate decision or new Ofgem price cap. We do not sell financial products, take affiliate commission on regulated products, or accept payment for editorial placement. Our full editorial standards, sources list and corrections policy are published on the Editorial Policy and Sources pages.

All figures cross-checked against HMRC and gov.uk
Annual review every 6 April
Event-driven updates within 7 days of fiscal announcements

uk-taxmortgagessavingsenergynational-insurancepensionscouncil-tax

Disclaimer: This guide is for general information only and does not constitute tax advice. Always confirm current capital allowances rules with HMRC or a qualified accountant before making claims.