The government made full expensing permanent in the 2024 Budget. That’s the 100% first-year allowance (FYA) that allows companies to write off qualifying equipment immediately, rather than spreading the expense over several years. That’s where we come in with our capital allowance tips. Read on.
Sounds simple enough, but the devil is in the details. The wrong choices can cost you thousands in unnecessary taxes or create difficult surprises when you sell assets later.
Here’s everything you need to know about making full expensing work for your business.
How the allowances work
Full expensing allows companies to claim 100% tax relief on qualifying new and unused plant and machinery in the year they purchase it. The 50% special-rate allowance works similarly, but only provides half the cost upfront.
Here’s what qualifies for each.
Full expensing (100% relief):
- computers and IT equipment
- manufacturing machinery
- office furniture and equipment
- commercial vehicles (not cars)
- tools and equipment.
Special-rate allowance (50% relief):
- air-conditioning and heating systems
- electrical installations and lighting
- solar panels and energy systems
- assets with expected life over 25 years.
What doesn’t qualify:
- cars (no full expensing or 50% special-rate allowance; separate 100% FYA exists for new zero-emission cars)
- assets bought specifically to lease out
- assets not used for the business.
The cash impact is substantial. A £50,000 equipment purchase gives you immediate tax relief worth £12,500 (assuming 25% corporation tax). Without full expensing, you’d receive approximately £2,000-£3,000 in year one. That’s a significant cashflow improvement when you need it most.
Real-world examples that show the savings
Consider a manufacturing company that spends £80,000 on new machinery.
Under full expensing, they get £20,000 immediate tax relief. Under the old system (18% writing-down allowance, no annual investment allowance (AIA)), they’d get £3,600 in year one. That’s a £16,000+ cashflow benefit.
A tech company upgrades their air-conditioning system for £25,000. This qualifies for a 50% special-rate allowance, providing £12,500 of immediate relief.
The remaining £12,500 is allocated to a pool, earning 6% annual interest going forward. If AIA is available, claiming AIA on the full £25,000 instead yields £6,250 in tax savings in year one.
In both cases, the relief unlocks cash that stays in your business to fund growth or improve cashflow.
The leased asset trap
This catches businesses off guard. Full expensing doesn’t apply to assets you buy specifically to lease out. The rules focus on your intention when buying assets – if you buy equipment planning to lease it out, no full expensing.
Equipment rental companies, plant hire businesses and finance companies must closely monitor this. The relief they lose can be significant on large equipment purchases.
The distinction can get blurry. If you buy a van for business use but occasionally hire it out when you don’t need it, you may be eligible for full expensing relief. If you buy specifically to hire out, you won’t. Keep clear records showing your primary intention when making purchases.
Disposal complications you need to know
Full expensing creates tax complications when you sell assets later. When you sell assets that benefited from full expensing, you face balancing charges on the full sale proceeds.
Here’s how it works: buy equipment for £30,000, claim full expensing then sell two years later for £15,000. You pay tax on the full £15,000 sale proceeds, even though you made a £15,000 economic loss.
This can create cashflow problems if you’re not prepared. Track which assets benefited from full expensing and budget for future tax charges when planning disposals. Consider holding assets longer if the disposal timing would result in inconvenient tax consequences.
Choosing between AIA and full expensing
Both provide 100% relief, but they work in different ways. AIA is a long-standing scheme that gives businesses a 100% deduction for the first £1m of qualifying plant and machinery each year. Unlike full expensing, AIA can be claimed by companies, partnerships and sole traders, and it covers both new and second-hand assets – including special-rate items such as air-conditioning or solar panels.
Full expensing has no annual limit and works for any amount of qualifying expenditure. You can’t claim both on the same asset, so choose the most beneficial option.
The strategy is usually to use AIA first on special-rate assets, where it provides 100% relief instead of 50%, then use full expensing for main-rate assets above the AIA limit.
Groups of companies share one £1m AIA between them, so larger businesses often exhaust this quickly. Companies under common control must normally share the AIA if they share business premises or carry on similar trades.
Smart timing strategies
Equipment bought on 31 March gets the same relief as equipment bought on 1 April the previous year, making year-end purchases attractive when you want to reduce current-year profits.
But timing matters for other reasons. The allowances only save tax if you have profits to set them against. Loss-making companies can carry forward relief, but immediate cash benefits are lost.
Monitor capital expenditure against available allowances throughout the year. If you’re nearing year end with unused allowances, bringing forward planned purchases can save you a significant amount of tax. If you’ve maximised relief, delaying non-urgent purchases might be better.
Making full expensing work for your business
Full expensing transforms how growing businesses think about capital investment. The immediate tax relief improves cashflow and reduces the effective cost of growth investments.
The key is understanding your specific situation and making informed choices about when and how to claim different allowances. Professional advice pays for itself many times over, particularly for businesses making substantial equipment investments.
We help growing businesses understand capital-allowance planning while staying on the right side of HMRC.
Whether you need help with major equipment purchases or just want to ensure you’re claiming everything you’re entitled to, our online service makes expert guidance accessible and affordable.
Contact Blue Shore today to discuss how full expensing and other capital allowance tips which can support your business growth while keeping your tax bills under control.
