Full Expensing & Capital Allowances 2026: A Complete Guide for UK Businesses

Excerpt

Full expensing remains a permanent capital allowance available to UK companies, offering 100% immediate tax relief on qualifying plant and machinery investments. With writing down allowances changing in 2026 and new reliefs introduced, understanding the current landscape is essential for maximising tax efficiency.

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Full Content

What Is Full Expensing?

Full expensing is a capital allowance that allows UK companies to deduct 100% of the cost of qualifying plant and machinery from their taxable profits in the year of purchase[6]. Rather than spreading relief across multiple tax years, businesses receive the entire tax deduction upfront.

At current corporation tax rates of 19–25%, this translates to a tax saving of up to 25p for every £1 spent on qualifying assets[6][8]. There is no minimum or maximum investment threshold—businesses can claim full expensing relief on all eligible expenditures.

Current Status: Now Permanent

Originally introduced on 1 April 2023 with an expiry date of 31 March 2026, full expensing has been made permanently available for companies[2][6]. This status was confirmed in the Autumn Budget 2025, providing businesses with long-term certainty for capital investment planning[6].

Key Changes from 1 April 2026

From April 2026 onwards, full expensing continues as a permanent relief for companies on qualifying main pool assets, excluding cars, second-hand items, and overseas leased assets[2].

Who Qualifies?

Companies (Limited Companies)

Companies subject to UK corporation tax remain the primary beneficiaries of full expensing. They can claim 100% immediate relief on qualifying main rate assets[2].

Sole Traders and Partnerships

Previously excluded from full expensing, unincorporated entities now benefit from a new 40% first-year allowance available from 1 January 2026 on qualifying main rate assets[2][4]. This represents a significant expansion, particularly for leasing businesses.

Qualifying Assets

Full expensing applies to a broad range of capital expenditure, including[7]:

• Machinery and equipment
• Manufacturing tools
• IT and servers
• Certain integral building features
• Some commercial property fixtures

Special rate assets (such as lighting, heating, solar panels, lifts, and escalators) qualify for a 50% first-year allowance instead of full expensing[2].

The Annual Investment Allowance (AIA)

The Annual Investment Allowance remains at £1 million permanently[1][2][4]. This provides equivalent tax relief to full expensing for expenditure up to this threshold and applies to all businesses, regardless of entity type.

For companies investing beyond £1 million annually, full expensing and the 50% first-year allowance (for special rate assets) provide relief on the additional amounts.

Important Exclusions

Not all plant and machinery qualifies. The following are typically excluded[3]:

• Most assets used for leasing purposes (with limited exceptions for background plant and machinery within buildings)
• Cars
• Second-hand items
• Overseas leased assets

Businesses intending to rent, hire, lease, or lend out plant and machinery should carefully review eligibility, as restrictions are often onerous[3].

Green Investment Extended

The 100% first-year allowance for zero-emission vehicles and electric vehicle charging infrastructure has been extended to 31 March 2027 (for companies) and 5 April 2027 (for individuals)[2][4]. This provides continued incentive for businesses upgrading fleets or installing charging networks.

Writing Down Allowances (WDA) Change

From 1 April 2026, the writing down allowance on the main pool reduces from 18% to 14% for companies[2]. This change reduces annual relief for assets not claimed under full expensing, making upfront claims under the new regime more valuable.

New 40% First-Year Allowance

From 1 January 2026, a new 40% first-year allowance applies to qualifying main rate assets[2][4]. This provides significant relief for:

• Leasing businesses
• Sole traders
• Partnerships
• Unincorporated entities

Previously excluded from full expensing, these businesses now benefit from a 40% upfront deduction with the remaining 60% introduced into the main pool and subject to writing down allowances[4].

Tax Planning Considerations

Timing of expenditure remains critical. Businesses should ensure qualifying assets are purchased and incurred (not merely ordered) within the relevant periods to access the most generous reliefs available.

Asset classification determines the relief available:

• Main rate assets: 100% (companies) or 40% (other businesses) from 1 January 2026
• Special rate assets: 50% first-year allowance
• Below £1 million: Annual investment allowance covers the full cost

Compliance and HMRC Guidance

For detailed guidance on capital allowances, businesses should contact HMRC directly at contact.capitalallowances@hmrc.gov.uk[1].

For comprehensive corporation tax planning, consult the Corporation Tax Guide 2026 for UK Limited Companies to understand how capital allowances interact with your broader tax strategy.

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Tags

capital allowances, full expensing, corporation tax, plant and machinery, tax relief, UK business tax, first-year allowance, capital expenditure, tax planning, 2026 tax changes

Category

Business Tax | Corporation Tax | Capital Allowances

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Sources

1. https://www.gov.uk/government/publications/capital-allowances-full-expensing/capital-allowances-full-expensing-for-companies-investing-in-plant-and-machinery-from-1-april-2023-until-31-march-2026
2. https://www.ukpropertyaccountants.co.uk/capital-allowances-full-expensing-and-50-fya/
3. https://www.pwc.co.uk/services/tax/insights/full-expensing-new-valuable-capital-allowance.html
4. https://www.azets.com/en-uk/insights/what-the-budget-means-for-business-capital-expenditure-relief
5. https://www.propertycapitalallowance.com/services/full-expensing-fe/
6. https://swoopfunding.com/uk/government-support/full-expensing/
7. https://propertytaxoptimisers.co.uk/blog/full-expensing-vs-wda-2026/
8. https://www.accaglobal.com/us/en/technical-activities/uk-tech/in-practice-ezine-archive/in-practice-archive_2023/September/Full-expensing-exclusions.html
9. https://www.saffery.com/insights/articles/capital-allowances-a-practical-guide-for-uk-businesses/