Capital Allowances on Plant & Machinery: Full Expensing vs FYAs

Why Capital Allowances Matter for Limited Companies

When your limited company buys plant and machinery, you generally can't deduct the full cost as a trading expense. Instead, you claim capital allowances, which reduce your taxable profits over time. The good news is that two generous reliefs — Full Expensing and First Year Allowances (FYAs) — allow most businesses to write off qualifying expenditure in full in the year of purchase, delivering an immediate corporation tax saving.

Full Expensing: The Headline Relief

Full Expensing was made permanent from April 2023 and applies to limited companies subject to corporation tax. It allows you to deduct 100% of the cost of qualifying new plant and machinery in the year you buy it, with no annual spending cap.

• Main rate (100% deduction): Applies to most new plant and machinery that would normally go into the main pool — computers, vans, office furniture, manufacturing equipment.
• Special rate (50% deduction): Applies to assets in the special rate pool, such as integral building features (heating, air conditioning, electrical systems) and long-life assets. You claim 50% in year one, with the remainder going into the special rate pool.

Full Expensing only covers brand new assets — second-hand purchases are excluded. It also cannot be used by sole traders or partnerships, only by incorporated companies paying corporation tax.

First Year Allowances: Targeted but Flexible

First Year Allowances predate Full Expensing and remain relevant in specific situations. Unlike Full Expensing, certain FYAs are available to sole traders and partnerships as well as limited companies.

• 100% FYA for electric vehicles: New zero-emission cars qualify for a 100% deduction in year one. This is significant because cars are explicitly excluded from Full Expensing, making this FYA the only route to a full first-year deduction on a company car.
• 100% FYA for electric vehicle charging points: Expenditure on new EV charging infrastructure also qualifies for 100% relief.
• 100% FYA for energy-efficient and environmentally beneficial plant: Assets on HMRC's energy technology or water technology lists qualify, though these lists are reviewed regularly so always check current HMRC guidance before purchasing.

Key Differences at a Glance

• New vs second-hand: Full Expensing requires new assets; some FYAs (such as the electric vehicle allowance) also require new assets, but check each FYA individually.
• Cars: Full Expensing does not apply to cars. Use the 100% FYA for new zero-emission cars instead.
• Who can claim: Full Expensing is limited companies only. Many FYAs are open to all business structures.
• Disposal rules: If you sell an asset on which you claimed Full Expensing, a balancing charge applies — HMRC effectively claws back part of the relief. Factor this into decisions on assets you may sell before the end of their useful life.

Practical Tips to Maximise Your Position

Before making a significant capital purchase, consider the following steps to ensure you claim the right relief:

• Check whether the asset qualifies as plant and machinery under HMRC's definitions — fixtures permanently attached to a building can sometimes qualify, but the rules are detailed.
• Buy assets before your accounting year-end to bring forward the tax relief by up to 12 months.
• Keep clear records of the purchase date, cost, and asset description — HMRC may request evidence that an asset is genuinely new and business-use only.
• If you purchase a mixed fleet of new zero-emission and petrol vehicles, claim Full Expensing on vans and 100% FYA on the electric cars — don't apply the wrong relief.
• Consult your accountant before disposing of assets on which Full Expensing was claimed, as a balancing charge in a year of high profits could be costly.

The Bottom Line

Full Expensing is the most powerful relief available to limited companies investing in new plant and machinery, delivering an immediate 25% corporation tax saving on qualifying spend. For cars and specialist green technology, targeted First Year Allowances fill the gaps. Used together strategically, these reliefs can significantly reduce your company's tax liability and improve cash flow in the year of investment.