Full Expensing Explained: How Limited Companies Can Write Off Equipment Costs in 2026/27

If your limited company is planning to buy new equipment this year, understanding "full expensing" could materially change how much corporation tax you pay — and when. Confirmed as a permanent measure, the relief lets qualifying companies claim 100% tax relief on plant and machinery in the same year they buy it.

What full expensing actually does

Full expensing allows companies within the charge to Corporation Tax to claim 100% of the cost of qualifying main-rate plant and machinery against taxable profits in the year of purchase, rather than spreading relief over several years through standard writing-down allowances. Having originally been introduced as a temporary measure, it was confirmed as permanent by the Chancellor — meaning businesses can plan capital investment with certainty rather than racing to beat an expiry date.

What qualifies — and what doesn't

Full expensing applies to new (not second-hand) main-rate plant and machinery bought for genuine business use. It does not apply to:

• Cars
• Second-hand assets
• Assets bought for leasing to someone else
• Assets used partly for non-business purposes

For sole traders and partnerships, full expensing isn't available in the same way — they rely instead on the Annual Investment Allowance (AIA), which offers 100% relief on most plant and machinery up to a set annual limit.

What else is changing in 2026

Two related developments matter alongside full expensing this year. From 1 April 2026, the standard Writing Down Allowance rate for plant and machinery in the "main pool" is reducing from 18% to 14%, making full expensing relatively more attractive for qualifying purchases, according to analysis from Alto Accounting. Separately, HMRC introduced a new 40% first-year allowance from 1 January 2026 for qualifying main-rate expenditure that sits outside the AIA and full expensing rules, giving smaller purchases a faster route to relief too.

Checklist: making the most of capital allowances in 2026/27

1. Confirm your business structure. Full expensing is only available to companies paying Corporation Tax — sole traders and partnerships should look at the Annual Investment Allowance instead.
2. Check the asset qualifies. Confirm it's new, main-rate plant and machinery genuinely used for the business — not a car, and not bought purely for leasing out.
3. Time large purchases deliberately. Since full expensing gives 100% relief immediately, bringing forward planned equipment purchases into a profitable year can maximise the cash-flow benefit.
4. Don't forget the AIA for sole traders and partnerships, and check the current annual limit via GOV.UK before assuming full relief is available.
5. Watch for disposal rules. If you later sell an asset that had full expensing claimed on it, you may need to bring in a balancing charge — factor this into your decision to buy rather than lease.
6. Keep clear records of purchase invoices, dates, and business-use proportions, since HMRC can query capital allowance claims as part of routine compliance checks.
7. Speak to your accountant about the new 40% first-year allowance if a purchase doesn't cleanly fit within AIA or full expensing rules.

Why it matters for cash flow

Immediate 100% relief means the tax saving lands in the same accounting period as the purchase, rather than being spread thinly over many years via writing-down allowances. For a company paying the main 25% Corporation Tax rate, a £100,000 qualifying purchase can reduce that year's tax bill by up to £25,000, compared with a much smaller first-year saving under the old 18% writing-down rate — though the total relief over time is broadly similar, the timing difference significantly improves cash flow.

How the UK compares internationally

The US offers a broadly comparable concept through Section 179 expensing and bonus depreciation, which similarly lets businesses deduct the full cost of qualifying equipment in the year of purchase, subject to annual limits. Australia's instant asset write-off gives small businesses an equivalent immediate deduction, though historically capped at a lower threshold than the UK's uncapped full expensing regime for companies.

Key Numbers

• 100% — proportion of qualifying plant and machinery cost relieved immediately under full expensing
• 14% — new main-pool Writing Down Allowance rate from 1 April 2026, down from 18%
• 40% — new first-year allowance introduced from 1 January 2026 for qualifying expenditure
• 25% — main rate of Corporation Tax that full expensing relief is set against

Sources

• GOV.UK: Work out your capital allowances
• ICAEW: Chancellor confirms full expensing will be permanent
• Alto Accounting: Capital Allowances — WDA Falls to 14% from April 2026

Educational content only — not financial advice.