UK Capital Allowances Full Expensing 2026/27 Guide

Q What is Full Expensing (FE)?

Full expensing is a 100% first-year allowance on new main-rate plant and machinery, with a 50% first-year allowance on new special-rate assets. Under CAA 2001 s.45S the expenditure must be incurred on or after 1 April 2023, by a company within the charge to Corporation Tax, on plant or machinery that is unused and not second-hand, and must not be caught by the anti-avoidance rule in s.45T or the general exclusions in s.46. It was introduced by F(No.2)A 2023 s.7 with an end date of 31 March 2026, which Finance Act 2024 s.1 removed, making it permanent. The general exclusions take out cars and plant for leasing, except plant leased under an excluded lease of background plant or machinery for a building. Example: a company spending £100,000 on new machinery deducts the full £100,000 in that period, saving £25,000 at the 25% main rate.

Q What is the Annual Investment Allowance (AIA) and how does it differ?

The AIA gives a 100% deduction on up to £1,000,000 a year of qualifying plant and machinery (CAA 2001 s.51A). The differences from full expensing: (1) Who: the AIA is available to companies, sole traders and partnerships; full expensing is companies only. (2) Cap: the AIA is capped at £1,000,000; full expensing is not. (3) Special-rate assets: the AIA gives 100% on special-rate spending; full expensing gives 50%. (4) Second-hand: the AIA has no new-and-unused condition; full expensing does. (5) Cars: excluded from both. A company spending more than £1,000,000 can use the AIA first (especially on special-rate items) and full expensing on the rest of its new main-rate plant. Companies in a group, and some businesses under common control, share a single AIA.

Q What capital allowances rates apply in 2026/27?

Main-rate plant (new, companies): full expensing 100%. Main-rate plant (new, any business): 40% first-year allowance under CAA 2001 s.45U for expenditure on or after 1 January 2026 (Finance Act 2026 s.29), useful above the AIA for unincorporated businesses and for lessors. AIA: 100% up to £1,000,000. Main pool writing-down allowance: 14% from chargeable periods beginning on or after 1 April 2026 (companies) or 6 April 2026 (income tax), with a time-apportioned hybrid rate for periods straddling the change (Finance Act 2026 s.28; it was 18%). Special rate pool: 50% first-year allowance for new assets (companies), 6% writing-down allowance. Special-rate expenditure includes integral features, thermal insulation, long-life assets and cars over 50g/km CO2. Cars: new zero-emission cars get a 100% first-year allowance for expenditure up to 31 March 2027 (companies) or 5 April 2027 (income tax) under s.45D; other cars go to the main pool (50g/km or less) or special rate pool (above 50g/km); second-hand cars get no first-year allowance. Structures and Buildings Allowance: 3% a year on qualifying construction costs; separate from plant and machinery.

Q Can sole traders use Full Expensing?

No. CAA 2001 s.45S requires the expenditure to be incurred by a company within the charge to Corporation Tax. Sole traders and partnerships, including LLPs (whose activities are treated as carried on by the members in partnership, ITTOIA 2005 s.863), use the AIA up to £1,000,000 and, from 1 January 2026, the 40% first-year allowance on new main-rate plant above it, with any balance going into the main pool at 14%. Assets used partly privately are claimed for the business proportion only. Whether incorporating is worthwhile for capital allowances alone depends on the wider tax position of the business and its owners.

Q How does FE compare with the Writing-Down Allowance (WDA)?

The main-pool WDA is 14% a year of the reducing pool balance (CAA 2001 s.56). Example - £100,000 of new machinery for a company paying the 25% main rate: Full expensing deducts £100,000 in year 1, saving £25,000 of tax at once. WDA only: year 1 £14,000, year 2 £12,040, year 3 £10,354, and £22,130 is still in the pool after 10 years. The total relief is ultimately the same; full expensing brings it forward. WDAs still matter for spending above the AIA that does not qualify for a first-year allowance (for example second-hand assets), and for pool balances brought forward.

Q What are the second-hand asset restrictions for FE?

Full expensing, the 50% FYA and the 40% FYA all require plant or machinery that is unused and not second-hand (CAA 2001 ss.45S and 45U). HMRC's manual (CA23174AB) says buying from a dealer rather than the manufacturer does not stop an asset being unused and not second-hand, and that HMRC can accept an asset as unused even if it has had some limited use for testing, delivery or demonstration. Ex-demonstration stock outside that, ex-lease and other used assets do not qualify for these allowances. The AIA has no such condition, so a second-hand asset can still get 100% relief within the £1,000,000 cap. Keep invoices and delivery records showing the asset was new.

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

For a company, new and unused special-rate expenditure qualifying under s.45S gets a 50% first-year allowance (CAA 2001 s.52(3)); the remaining half goes into the special rate pool at 6%. Example: £100,000 of integral features (CAA 2001 s.33A(5): electrical systems including lighting, cold water systems, space or water heating, powered ventilation, air cooling or air purification, lifts, escalators and moving walkways, and external solar shading). With the 50% FYA, £50,000 is deducted in year 1. If the AIA is still available, the whole £100,000 can be deducted instead, so companies usually allocate the AIA to special-rate spending first and full expensing to main-rate spending.

Q What happens when I dispose of an asset with an FE claim?

A company that has claimed full expensing and later disposes of the asset is liable to a balancing charge in the period of disposal (CAA 2001 s.59A). For an asset claimed in full, the charge is the disposal value; for the 50% special-rate FYA, s.59B charges half of the disposal value immediately. A disposal value is generally capped at the original qualifying cost (s.62). Example: a machine fully expensed at £100,000 and sold for £40,000 gives a £40,000 balancing charge, £10,000 of tax at the main rate - leaving a net £15,000 of relief. Insurance proceeds for a destroyed asset count as disposal value.

Q How does FE interact with Corporation Tax marginal relief?

Corporation Tax in 2026/27 is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between, which makes the effective rate on profit in that band 26.5%. A deduction is therefore worth the most in the marginal relief band. Example for a single company with no associated companies and a 12-month period: profit of £300,000 pays £75,000; a £100,000 full-expensing claim cuts profit to £200,000, which pays £49,250 - a saving of £25,750. The limits are divided by one plus the number of associated companies, including overseas ones (CTA 2010 s.18D). If the claim creates a trading loss, it can be carried back 12 months or carried forward under the normal loss rules.