Full expensing explained

Why pay more tax than you need to? Full expensing lets you claim back 100% of the cost of qualifying plant and machinery all in one go. Save up to 25p for every £1 you spend.

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on April 22, 2024. Next review due April 6, 2025.

    Full expensing is a tax relief scheme that can take the sting out of buying big-ticket business assets. Set the full cost of plant, machinery, tractors, lorries, furniture, technology and more against your annual profits all at once. Instead of paying too much tax, get the equipment you need to make your business grow.

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      What is full expensing?

      Full expensing is a capital allowance tax scheme that lets UK companies deduct 100% of the cost of capital equipment from their profits in the year it is bought, instead of spreading the cost across multiple tax years. First introduced in the UK Government’s spring budget 2023, the scheme was set to expire on 31 March 2026, but it was made permanent in the Chancellor’s Autumn Statement in November 2023. Full expensing is here to stay.

      How does it work?

      Full expensing allows UK companies to deduct the full cost of new and unused plant and machinery from their taxable profits in the year of purchase. Full expensing replaced the old super-deduction capital allowance, which expired on 31 March 2023. Full expensing allows companies to write off 100% of the cost of investment in qualifying plant and machinery in one go – equivalent to a tax saving of up to 25p for every £1 spent.  There is no minimum or maximum amount of investment. Businesses can claim full expensing relief on all qualifying expenditures.

      Note that there are special capital allowance rules relating to assets acquired on hire purchase or finance leases, as with equipment bought using asset finance, or similar business loans. Generally, these assets are treated as belonging to the business using them, even though legal ownership may not pass until a final payment is made at the end of the contract term. The Government is currently considering expanding full expensing rules to include leased plant and machinery. Businesses should also be aware that any interest on hire purchase items is classed as a revenue (trading) expense and not part of the capital expenditure and cannot be claimed back with full expensing.

      Why was full expensing introduced?

      Full expensing was introduced to encourage UK companies to invest more in modern plant, tools, machinery, and technology. In 2021, UK business investment accounted for 10.0% of GDP compared to an average of 12.5% among our overseas competitors.

      What are capital expenses?

      Capital expenses are long-term investments, meaning purchased assets that have a useful life of one year or more. Types of capital expenditures can include purchases of property, equipment, land, computers, furniture, and software. They are quite different from ‘trading’ expenses, which cover the daily costs of running a business, such as wages, rent, fuel, and energy.

      What types of equipment are included?

      Qualifying plant and machinery includes, but is not limited to:

      • Warehousing equipment such as forklift trucks
      • Tools such as ladders and drills
      • Construction equipment such as bulldozers and excavators
      • Machines such as computers and printers
      • Vehicles such as tractors
      • Lorries and vans
      • Office equipment such as chairs and desks
      • Some fixtures such as kitchen and bathroom fittings
      • Fire alarm and security systems

      Does the scheme replace super-deduction?

      Yes. Although full expensing is less generous than super-deduction, which was introduced as a special measure to help UK businesses recover from the pandemic.

      How does it differ from super-deduction?

      Super-deduction allowed companies to deduct 130% of the cost of capital expenses in the year they occurred and in one go. Full expensing works the same, but it is limited to only 100% of the cost of the purchased assets.

      The super-deduction and SR allowance did not apply to partnerships or individuals. They only applied to incorporated companies that were liable for corporation tax. Full expensing continues this rule.

      Comparing super-deduction and full expensing side by side

      Example company with £100,000 gross profits and £100,000 capital expenses:

      SchemeExpenditureDeduction rateEffective rateTax saving
      Super-deduction£100,000130%19% ( tax rate until March 31 2023 )£24,700
      Full expensing£100,000100%19% - 26.5% ( new tax rates from 1 April 2023 )£20,750

      An example of full expensing

      A company has gross annual profits of £10 million in the 2023-24 tax year. Instead of paying corporation tax of £2,500,000 on this sum, the business invests in a new state-of-the art production line, spending £10 million on various items of main rate plant and machinery. 

       

      The company can claim £10 million under full expensing in the year the expenditure is incurred, so they deduct the whole sum from their gross profits, reducing their corporation tax bill to zero. The £2,500,000 they would have paid in tax is now set against the cost of the production line, reducing the real expense by 25% to £7,500,000.

      What if my profits are too low or I've made a loss?

      Under full expensing you can only claim against your pre-tax profits. If the value of the assets you have bought are higher than your profits, or you have zero profits because you have made a loss, you can set part of the asset cost against whatever profits you have. The balance of the value of the asset can then be rolled over and set against profits, using full expensing, in the next tax year.

      Can I utilise full expensing if I’m in a partnership?

      No, full expensing is only open to incorporated businesses that pay corporation tax.

      Read more: our guide on how to register and pay corporation tax.

      Can a sole trader utilise full expensing?

      No, full expensing is not available to sole traders, partnerships, or LLPs. It’s only open to incorporated businesses that pay corporation tax. However, non-eligible businesses are still entitled to claim the Annual Investment Allowance (AIA) which offers the same benefits as full expensing for the investments it covers (up to £1 million per year).

      Is my business eligible?

      Your business is eligible if it’s an incorporated company and it spends money on any of the qualifying plant and machinery listed above.

      What happens if I sell the asset/s?

      When a company sells an asset on which it has claimed full expensing, the company will be required to bring in an immediate balancing charge equal to 100% of the disposal value. This means that if the company sold an asset for £10,000 on which they had claimed full expensing, they would be required to increase their taxable profits by a matching £10,000.

      What other capital allowances exist in the UK?

      As well as full expensing, UK businesses may utilise other forms of capital allowance. These options will be of special interest to non-corporations who cannot claim Full Expensing. 

      Other capital allowances include: 

      • Annual Investment Allowance (AIA) which allows businesses to claim 100% of the cost of plant and machinery up to £1m in the year it is incurred
      • Writing Down Allowances (WDA) which spread the tax deductions over time at 18% and 6% a year for main rate and special rate expenditure respectively.
      • First-Year Allowances (FYA) which allow a company to claim a percentage of the cost of plant and machinery investments in the year it is incurred.
      • Structures and Buildings Allowances (SBA) which allow a business to deduct 3% per year over 33 1/3 years for qualifying expenditure on non-residential structures and buildings.

      How Swoop can help

      Whether you choose to use full expensing or another tax relief scheme, it makes sense to make the most of capital allowances. We have a dedicated asset finance team ready to help you purchase the assets your business requires and secure the highest tax relief whilst doing so.

      Buy the equipment you need. Don’t pay more tax than you need. Register with Swoop to speak to an expert about your capital expenditures.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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