Full Expensing vs AIA vs 18% Writing Down Allowance
Full expensing (made permanent from April 2023) allows companies to deduct 100% of qualifying main pool plant & machinery in year 1. Special rate assets get a 50% first-year allowance. Compare the tax timing benefit against writing down at 18%.
Frequently Asked Questions
What is full expensing?
Full expensing allows companies to deduct 100% of qualifying plant and machinery costs in the year of purchase — instead of writing down at 18% per year. It was made permanent from 1 April 2023 and replaces the temporary 130% super-deduction that ended in March 2023.
Who can claim full expensing?
Only companies subject to UK Corporation Tax can claim full expensing. Sole traders and partnerships cannot — they use the Annual Investment Allowance (AIA) of up to £1 million instead. AIA and full expensing provide the same 100% deduction, but AIA has a cap.
What assets qualify for full expensing?
Main pool qualifying assets include: computers and IT equipment, machinery, vehicles (not cars), fixtures, and general manufacturing equipment. Special rate assets (integral building features, long-life assets over 25 years) get a 50% first-year allowance instead.
What is the special rate 50% first-year allowance?
Special rate assets — integral building features (electrical systems, heating, air conditioning, lifts), solar panels, and assets with over 25-year lives — qualify for a 50% first-year allowance (down from 100% under full expensing). The remaining 50% continues at the 6% special rate WDA.
Does full expensing apply to cars?
No. Cars are specifically excluded from full expensing. New zero-emission cars qualify for a 100% first-year allowance (separate provision). Other cars use writing down allowances at 18% (main pool) or 6% (cars with CO2 over 50g/km).
What happened to the super-deduction?
The 130% super-deduction ran from April 2021 to March 2023 as a pandemic recovery measure. It allowed companies to deduct 130% of qualifying costs. It was replaced by permanent full expensing at 100% from April 2023.
Is there a limit on full expensing?
Full expensing has no cap — unlike the AIA which is limited to £1 million per year. A company spending £50 million on plant and machinery can claim the full £50 million in year 1 under full expensing.
What is the Annual Investment Allowance (AIA)?
AIA is a 100% first-year deduction for qualifying plant and machinery up to £1 million per year. It is available to all businesses, including sole traders and partnerships. For companies, AIA and full expensing produce the same result within the £1 million limit.
What is a balancing charge on disposal?
If an asset claimed under full expensing is later sold, a balancing charge arises equal to the sale proceeds (as the asset has no remaining pool balance). This is the opposite of a capital allowance — it adds to taxable profit. Plan disposals carefully.
Does full expensing affect the writing-down allowance pool?
Assets claimed under full expensing are removed from the main pool — they do not enter the pool and are not subject to WDA. They are deducted at 100% in year 1. Any disposal proceeds on such assets become a balancing charge.
Can full expensing be claimed on leased assets?
Generally, only the lessee who has the economic risk (finance lease lessor in some cases) or owner can claim capital allowances. Operating leases: the lessor claims, not the lessee. Short-life assets on finance lease: check specific rules.
What is the interaction between full expensing and R&D enhanced deductions?
Full expensing and R&D relief can both apply to the same expenditure if it qualifies. However, the R&D relief applies to revenue expenditure (not capital), so they generally operate on different types of costs. Capital equipment used in R&D claims capital allowances, not R&D enhancement.