Full Expensing and First-Year Allowances: Which Relief Applies to Your Spend

Buy a piece of plant and machinery for your business today and there are four different first-year routes it might travel down: full expensing at 100%, the 50% first-year allowance, the new 40% first-year allowance introduced on 1 January 2026, and the annual investment allowance. They overlap, they exclude different things, and picking the wrong one leaves relief on the table or, worse, claims a relief you were never entitled to. This is the decision page. It does not re-derive the statute mechanics (the full expensing and 50% FYA mechanics for property companies are set out in full separately). It answers one question: which relief applies to your spend.

Three facts about the asset decide almost everything. Is your business a company or unincorporated? Is the asset new and unused, or second-hand? And is it main-rate plant or special-rate plant? Hold those three in mind and the rest of this page maps them onto the right relief.

Full expensing: 100% for companies on new main-rate plant

Full expensing is a 100% first-year allowance. A company deducts the entire cost of qualifying plant from its taxable profits in the accounting period the expenditure is incurred, rather than writing it down over years. It sits in CAA 2001 s.45S, was introduced by Finance (No. 2) Act 2023, and has been permanent since 1 April 2023. There is no cap, no sunset clause and no expiry to plan around.

The conditions are strict, and they are the whole story. The claimant must be a company within the charge to corporation tax. The asset must be new and unused, so second-hand plant is out. And it must be main-rate plant, the general pool of machinery, tools, equipment, IT and loose plant, not special-rate integral features. Meet all three and the relief is total and immediate. Miss any one and you are on a different route below. Because relief is 100% and uncapped, a company with large main-rate spend will almost always prefer full expensing to any other first-year allowance.

The 50% first-year allowance on special-rate plant

Special-rate plant does not qualify for full expensing, but companies get a companion relief: a 50% first-year allowance on new and unused special-rate expenditure. Special-rate plant is the integral-features category, electrical and lighting systems, cold and hot water systems, space and water heating, air conditioning and ventilation, lifts and escalators, plus long-life assets and thermal insulation.

The company deducts half the cost in year one. The remaining half drops into the special-rate pool and is written down at 6% a year from then on. Like full expensing, this is a companies-only, new-assets-only relief. For a commercial fit-out, that split (100% on the main-rate loose plant, 50% up front on the special-rate services) is exactly where a specialist survey earns its fee, because the boundary between the two pools is where value is routinely misallocated. Where that spend is embedded in a building you are buying, see embedded capital allowances on commercial property.

The new 40% first-year allowance from 1 January 2026

The important 2026 addition is a 40% first-year allowance on new and unused main-rate plant, available from 1 January 2026. It is the first mainstream first-year allowance on general plant that is open to both companies and unincorporated businesses (the latter on the accruals basis). It does not apply to cars, and it does not apply to second-hand assets.

Where does it sit? Below full expensing (100%) and the AIA (100% up to the cap), and above writing-down allowances (14% or 6% a year). For a company, it rarely changes anything: a company with main-rate spend already has 100% full expensing, so it would not choose 40%. The 40% allowance matters most for the group that was previously locked out of any uncapped first-year relief: unincorporated businesses spending above the £1 million AIA cap. A sole trader or partnership that spends past its annual investment allowance used to fall straight to writing-down allowances at 18%, soon 14%. Now the slice above the AIA on new main-rate plant gets 40% in year one instead. That is a real acceleration of relief for larger unincorporated investors.

Where the annual investment allowance still fits

None of the above retires the annual investment allowance. The AIA gives 100% relief on the first £1 million of qualifying expenditure each year, and it is the most flexible of all the reliefs. It is open to any business, company or not. It covers new and second-hand assets. And it covers both main-rate and special-rate plant. It is permanent at £1 million.

That flexibility is precisely why the AIA still matters even for a company that can use full expensing. Full expensing cannot touch second-hand plant or special-rate features at 100%, but the AIA can. So the common planning move is to point the AIA at the spend that full expensing cannot reach (second-hand kit, or special-rate integral features you want relieved at 100% rather than 50%), and let uncapped full expensing carry the new main-rate plant. For an unincorporated business, the AIA is the first £1 million of everything, with the new 40% allowance picking up new main-rate spend above the cap.

A worked comparison: the same spend, company vs unincorporated

Take a company buying £300,000 of new machinery (main-rate plant) plus £120,000 of new integral features (special-rate) as part of a commercial refit in a single accounting period.

• The machinery: full expensing gives a 100% deduction of £300,000 in year one. At the 25% main corporation-tax rate that is £75,000 of tax saved immediately.
• The integral features: the 50% first-year allowance gives £60,000 of relief now (£15,000 of tax saved), and the remaining £60,000 enters the special-rate pool at 6% a year (£3,600 in the following year, and so on).

Now run the identical spend through a sole trader. Full expensing and the 50% allowance are closed to unincorporated businesses. The trader uses the £1 million AIA to relieve the whole £420,000 at 100% in year one, main-rate and special-rate alike, saving income tax at their marginal rate. The AIA route is actually cleaner here because the £420,000 sits comfortably under the £1 million cap. The company and the sole trader both get near-full first-year relief, but by completely different mechanisms, and the moment either spends past the AIA cap on second-hand or special-rate plant, the routes diverge sharply.

The super-deduction: gone, and what replaced it

A lot of searches still ask about the super-deduction. It was a temporary 130% first-year allowance that ran from 1 April 2021 to 31 March 2023, designed to bring investment forward across the corporation-tax rate rise. It ended on 31 March 2023 and cannot be claimed on any expenditure incurred from 1 April 2023 onward. It was replaced by full expensing. If a purchase you are researching was made in the super-deduction window it may still be relevant to a prior-year position, but for anything current the reliefs above are the live ones.

The disposal clawback: relief that can come back

First-year allowances carry a sting that pooled writing-down allowances do not. When a company disposes of an asset on which it claimed full expensing, an immediate balancing charge equal to the full disposal value is added to taxable profits in the period of sale. For assets that had the 50% first-year allowance, half the disposal value is charged (with the pooled half handled in the normal way). This is not the ordinary pool treatment where sale proceeds merely reduce a pool balance. It means the relief you took at 100% can be recovered by HMRC in full if you sell the asset on, or transfer it, later. For property companies that expect to sell plant with a building, the disposal-value mechanics are covered in the SPV mechanics guide, and they should be modelled before the first-year claim is made, not after.

What is left runs on writing-down allowances

Any qualifying spend not relieved by a first-year allowance or the AIA falls into the pools and is written down each year. The rates changed in 2026. The main-pool rate has dropped from 18% to 14%, effective 1 April 2026 for corporation tax and 6 April 2026 for income tax. A chargeable period straddling the change date uses a hybrid, time-apportioned rate rather than a single flat figure, so do not assume 18% on a period that runs across the change. The special-rate pool stays at 6%. The reduction makes the first-year reliefs more valuable in relative terms, because the alternative (letting spend sit in the pool) now relieves more slowly than before.

The decision, in order

Reduced to a checklist, the relief on a given asset is decided like this:

• Is it a car? If so, none of these apply. Cars have their own regime, covered in capital allowances on cars and vehicles (no AIA, no full expensing, no 40% allowance; only new zero-emission cars get 100%).
• Is it second-hand? If so, no first-year allowance applies. Use the AIA up to £1 million, then writing-down allowances on any balance.
• Are you a company, and is it new main-rate plant? Full expensing, 100%, uncapped.
• Are you a company, and is it new special-rate plant? 50% first-year allowance, with the balance to the 6% pool. Or point the AIA at it for 100%, whichever suits the year.
• Are you unincorporated? AIA on the first £1 million of anything. New main-rate spend above the cap gets the new 40% first-year allowance. Everything else goes to the pools at 14% or 6%.

The subtlety that catches people out is the interaction between entity type and the £1 million cap. Above the cap, a company keeps 100% on new main-rate plant while an unincorporated business gets 40%; a company's incorporation decision therefore has a direct capital-allowances dimension the moment large plant spend is on the table. The related point of who can claim full expensing at all, and the 40% fallback for those who cannot, is set out in the companion page on full expensing for property investors.

When a specialist review pays for itself

For a clean purchase of loose plant, applying these reliefs is straightforward and you may not need help. The value, and the risk, concentrate where spend is embedded in a building, spread across a mixed fit-out, or sitting on the boundary between the main-rate and special-rate pools. That is where the highest-relief route is quietly missed, where the disposal clawback is overlooked, and where allocation errors surface on enquiry. A specialist capital-allowances firm surveys the expenditure, assigns each item to the correct pool and the correct first-year relief, and prepares a defensible claim. Most run a no-obligation feasibility review first, so you see the number before deciding to proceed. If you own or are buying commercial property or plant, that review is the sensible first step. Note that this is an unregulated specialist tax service, not general accountancy, so route the claim to a capital-allowances specialist rather than a high-street accountant.

For an indicative figure before you speak to anyone, the capital allowances calculator estimates the pool and year-one saving from a purchase price or fit-out spend. Authoritative detail on the underlying rules is in HMRC's full expensing guidance, the statute at CAA 2001 s.45S and s.51A (annual investment allowance), and the Capital Allowances Manual at CA23162 (full expensing) and CA23084 (special-rate pool).