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Full Expensing and 50% First Year Allowance
If your company buys qualifying plant and machinery, you may be able to claim 100% full expensing or a 50% first year allowance to reduce your corporation tax bill. These generous reliefs give you significant tax savings upfront, but special rules apply when you later sell or...
If your company buys qualifying plant and machinery, you may be able to claim 100% full expensing or a 50% first year allowance to reduce your corporation tax bill. These generous reliefs give you significant tax savings upfront, but special rules apply when you later sell or dispose of the asset.
What are full expensing and 50% first year allowance?
Full expensing allows companies to deduct 100% of the cost of new main rate plant and machinery from their profits in the year of purchase. This means the entire cost reduces your taxable profit immediately, rather than spreading the relief over several years.
The 50% first year allowance works similarly but applies to special rate assets (such as integral features like air conditioning systems or electrical systems). It allows you to claim 50% of the cost as a deduction in the first year, with the remaining 50% added to your special rate pool for ongoing capital allowances.
Both reliefs are available to companies paying corporation tax. They cannot be claimed by sole traders or partnerships.
Which assets qualify?
Full expensing applies to new (not second-hand) main rate plant and machinery. This includes equipment such as vehicles, machinery, computers, and office furniture that would normally qualify for the main rate pool.
The 50% first year allowance applies to new special rate assets. These are typically integral features of buildings, including:
- Electrical systems (including lighting)
- Cold water systems
- Space and water heating systems
- Powered ventilation systems
- Air conditioning and air cooling systems
- Lifts, escalators, and moving walkways
- External solar shading
Claiming the relief
You can claim full expensing or the 50% first year allowance on your Company Tax Return for the accounting period when you bought the asset.
You don't have to claim the relief on the full cost of an asset. You can choose to claim it on part of the cost and add the remaining expenditure to your capital allowances pool in the normal way. This flexibility can be useful for tax planning purposes.
What happens when you dispose of the asset?
When you sell or dispose of an asset on which you've claimed full expensing or the 50% first year allowance, you must calculate a balancing charge. This balancing charge increases your taxable profits and is added to your Company Tax Return.
The disposal value is usually the amount you sell the asset for (or its market value if you give it away or sell it for less than market value).
Important: You must not deduct the disposal value included in the balancing charge from your main rate or special rate pool, as you would with a normal disposal.
Calculating the balancing charge for full expensing
The calculation depends on whether you claimed full expensing on the entire cost or only part of it.
If you claimed full expensing for the full cost: The balancing charge equals the disposal value.
If you claimed full expensing for part of the cost: You need to work out the relevant proportion:
1. Work out the disposal value
2. Divide the amount you claimed full expensing on by the original cost of the asset (this gives you the relevant proportion)
3. Multiply the disposal value by the relevant proportion
Example: Hunter and Ball Ltd bought an excavator for £100,000 on 1 April 2023. They claimed full expensing on £40,000 and pooled the remaining £60,000. They sold the excavator for £50,000 on 1 April 2026.
- Disposal value: £50,000
- Relevant proportion: £40,000 ÷ £100,000 = 0.4
- Balancing charge: £50,000 × 0.4 = £20,000
The balancing charge is £20,000. The remaining disposal value of £30,000 is deducted from the main rate pool in the normal way.
Calculating the balancing charge for 50% first year allowance
Again, the calculation depends on whether you claimed the allowance on the full cost or only part of it.
If you claimed the 50% first year allowance for the full cost: The relevant proportion of the disposal value is half (50%).
If you claimed the 50% first year allowance for part of the cost:
1. Work out the disposal value
2. Take the amount you claimed the 50% first year allowance on and divide it by 2
3. Divide the result by the original full cost of the asset (this gives you the relevant proportion)
4. Multiply the disposal value by the relevant proportion
Example: Hunter and Ball Ltd spent £1,600,000 on an air conditioning system on 1 April 2024. They claimed annual investment allowance on £1,000,000 and 50% first year allowance on the remaining £600,000. They sold the system for £200,000 on 1 April 2029.
- Disposal value: £200,000
- Amount claimed with 50% FYA ÷ 2: £600,000 ÷ 2 = £300,000
- Relevant proportion: £300,000 ÷ £1,600,000 = 0.1875
- Balancing charge: £200,000 × 0.1875 = £37,500
The balancing charge is £37,500. The remaining £162,500 of the disposal value is deducted from the special rate pool in the normal way.
Key points to remember
- Full expensing and 50% first year allowance give generous upfront tax relief
- You can claim the relief on all or part of an asset's cost
- When you dispose of the asset, you must calculate and add a balancing charge to your taxable profits
- The disposal value included in the balancing charge should not be deducted from your capital allowances pool
- Any remaining disposal value (not subject to the balancing charge) is deducted from the relevant pool in the normal way
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.