Since Royal Assent of the Autumn Finance Act 2023, full expensing has moved from a three-year experiment to a permanent fixture of the UK corporation tax code. Companies investing in new plant and machinery can now claim 100% relief in the year of expenditure, while special-rate assets – such as integral features and long-life equipment – continue to enjoy a generous 50% first-year allowance. At first glance this looks like a simple continuation of the super-deduction mindset, but permanence unlocks new opportunities: investment decisions can be timed for commercial reasons rather than a race to beat a sunset date; group cash-tax forecasts can be modelled years in advance; and lenders can take comfort that accelerated relief will be available when capital projects finally break ground.
For many mid-market and larger groups, corporation tax now represents their single largest outgoing after payroll. With the main rate sitting at 25% for profits above £250,000 – and marginal relief tapering between £50,000 and £250,000 – securing an immediate deduction on qualifying spend has a direct impact on quarterly cashflow and on lending covenants built around EBITDA. HMRC estimates that making full expensing permanent will reduce receipts by £10.9 billion a year by 2028-29 (HMRC, 2023, underlining the scale of the saving on offer to the corporate sector. Yet uptake still relies on sound record-keeping and an understanding of how the rules interact with the annual investment allowance (AIA), leasing, and disposal clawbacks. This article explains where the wins are, how to model them before year-end, and the pitfalls to avoid.
What full expensing covers
- Main-rate plant and machinery: 100% first-year deduction with no monetary cap.
- Special-rate assets: 50% first-year deduction, with the balance written down at 6% a year.
- Exclusions: leased assets, most cars, and expenditure incurred before the asset is brought into use.
Interaction with other capital allowances
- Annual investment allowance (AIA): Up to £1 million per year of any qualifying plant – including special-rate items – can still be fully deducted. Most SMEs therefore use AIA first, reserving full expensing for spend over £1 million or for groups too large to share a limited AIA pot.
- Structures and buildings allowance: Stays at 3% straight-line; no overlap with full expensing.
How to model the cash-tax benefit
- Baseline tax: At 25%, every £1 million of capital spend normally attracts just £45,000 of first-year relief (18% writing-down allowance × 25%).
- Full expensing scenario: The same £1 million yields an immediate £250,000 tax saving – a £205,000 cash advantage in year one.
- Net present value: Discounting the accelerated relief at 6%, the NPV of the saving over a five-year planning horizon rises by roughly 17% compared with traditional writing-down allowances.
- Group planning: Large groups paying quarterly instalments can reduce forthcoming payments if accurate capex forecasts are fed into the Corporation Tax Payment Plan before the due dates.
Timing strategies before your year-end
- Delivery date focus: Relief only crystallises when the asset is brought into use, not when it is ordered. Time shipments so that installation completes before the accounting period ends.
- Contract structuring: For build contracts that span year-end, consider milestone invoicing to bring qualifying elements into the earlier period.
- Special-rate mix: For electrical and HVAC projects inside a property refurbishment, allocate as much spend as possible to integral features so that the 50% allowance applies ahead of the slower 6% pool.
Record-keeping and common pitfalls
- Asset registers: Ensure descriptions are detailed enough to prove that items are new and not leased.
- Disposal clawbacks: If you sell or scrap an asset, any sale proceeds are taxed immediately. Plan secondary markets and internal transfers carefully.
- Connected-party transfers: Market-value rules can erode relief if assets move between group companies. Keep intra-group agreements on an arm’s-length footing.
- Environmental subsidies: Where a grant funds part of the cost, only the unfunded element qualifies – split invoices accordingly.
Why full expensing matters for growth
The Office for Budget Responsibility believes that permanence will drive £14 billion of additional business investment and lift potential GDP by 0.1% in the medium term (OBR, 2023). Early signs are promising: UK business investment rose 3.9% in Q1 2025 and now sits 6.1% above last year’s level (ONS, 2025), with transport and ICT equipment leading the charge. While multiple factors feed into these numbers – interest-rate expectations, supply-chain resilience and so on – the tax signal is clear: invest, and the Exchequer will share the cost upfront.
Putting full expensing to work
Permanent full expensing turns capital allowances from an administrative afterthought into a board-level lever for releasing cash and improving investment metrics. Whether you are fitting out a new distribution centre, upgrading production lines or rolling out energy-efficient plant across multiple sites, the difference between 100% relief now and incremental relief over a decade is tangible. Yet the rules repay attention to detail: get the timing or asset classification wrong and the benefit erodes fast.
We help clients across manufacturing, logistics, tech and professional services secure every pound of relief – from pre-purchase modelling through to claim preparation and HMRC enquiry support. If your year-end falls within the next twelve months, there is still time to quantify upcoming spend, adjust instalment payments and improve headline cashflow.
Speak to us today about full expensing and let our team maximise the tax value of your next investment.