Capital Allowances in 2025/26: How to Use Full Expensing Before Year-End

If your company plans to invest in equipment, tools, or technology before the end of the financial year, the current capital allowances regime offers a valuable tax planning opportunity — especially while full expensing remains in place.

Introduced as a permanent feature in 2023, full expensing allows limited companies to claim 100% tax relief on qualifying plant and machinery in the year of purchase. That means you can deduct the entire cost of eligible assets from your taxable profits — reducing your Corporation Tax bill significantly.

But not every purchase qualifies, and the rules vary depending on the type of asset, how it’s used, and your accounting date. With Corporation Tax at up to 25%, this is a relief worth using before your year-end — especially if you’re planning big purchases.

Let’s break down what full expensing is, how it compares to the Annual Investment Allowance (AIA), and how to make the most of capital allowances before 31 March 2026.

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What is full expensing?

Full expensing is a capital allowance that allows companies to deduct 100% of the cost of qualifying main pool plant and machinery in the year the asset is purchased and brought into use.

It applies only to limited companies and is used for Corporation Tax purposes.

For example:

• Your company buys £50,000 of IT and machinery in January 2026.
• That £50,000 is fully deductible against taxable profits for the 2025/26 accounting period.
• If you’re paying the full 25% Corporation Tax rate, that’s a £12,500 tax saving in one go.

This is more generous (and simpler) than claiming a deduction over several years using writing down allowances.

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How is full expensing different from AIA?

You may already be familiar with the Annual Investment Allowance (AIA) — which also provides 100% relief on qualifying plant and machinery, up to £1 million per year.

So what’s the difference?

In practice, most small and medium-sized companies still use AIA for their main claims — especially for assets like office furniture or fitted fixtures — but full expensing offers unlimited relief for larger investment.

If you’re buying over £1 million of equipment — or you’re in a group that’s already used its AIA elsewhere — full expensing gives an extra deduction.

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What qualifies for full expensing?

To qualify, the asset must be:

• New (not second-hand)
• Plant and machinery used in your business
• Purchased outright or on hire purchase (not leased)
• Not a car
• Not part of a property purchase (in most cases)

Examples of qualifying assets:

• Office computers and servers
• Manufacturing equipment
• Tools and machinery
• Business-use vans (not cars)
• Specialist IT systems
• Commercial kitchen equipment
• Fittings installed in a non-residential property (e.g. shelving, workbenches)

You must also bring the asset into use in the same accounting period — it’s not enough to order it or pay a deposit.

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What doesn’t qualify?

Full expensing does not apply to:

• Used or second-hand assets
• Cars (though some vans qualify)
• Assets bought to lease out
• Items purchased on operating leases
• Fixtures included in a property acquisition

If you’re investing in a new office, shop, or warehouse, certain parts of the fit-out may still qualify under the AIA or a 50% first-year allowance (FYA) for special rate pool items — but full expensing is for stand-alone purchases only.

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Can sole traders use full expensing?

No — full expensing is only available to incorporated companies.

If you’re a sole trader or partnership, you can still use the AIA (up to £1 million per year) for most of the same purchases, and often claim 100% relief in the year of purchase. But you cannot claim under the full expensing regime.

If you’re unsure whether to incorporate or remain as a sole trader, this is one of many planning points to discuss before year-end.

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How does this reduce Corporation Tax?

Because full expensing is a deduction against taxable profits, it reduces your Corporation Tax directly:

• At the full 25% rate, £10,000 of qualifying spend saves £2,500
• At the marginal rate, the saving varies depending on profit
• For small companies (under £50,000 profit), the rate is still 19%, so savings are smaller — but still worthwhile

If your company is near a threshold (e.g. about to hit marginal relief or full 25%), capital allowances can help reduce profits and keep you in a lower tax band.

Merranti can run calculations based on your draft year-end figures to show how best to time purchases and avoid crossing rate bands unnecessarily.

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Year-end planning tips for 2025/26

As we approach 31 March 2026 (or your company’s year-end), consider the following:

1. Time your purchases carefully
To claim relief in 2025/26, the asset must be bought and in use before your company’s year-end. Don’t leave it until April if you want the tax saving this year.

2. Don’t lease assets you could buy
Assets acquired under operating leases won’t qualify. Hire purchase agreements may be fine if you gain ownership.

3. Use AIA for second-hand or excluded assets
If an item doesn’t qualify for full expensing, it might still qualify for AIA or writing down allowances — so nothing is lost, just spread over time.

4. Consider grouping purchases
If you’re planning multiple purchases — e.g. vans, tools, computers — doing them before year-end may produce a better tax result than spreading them over two years.

5. Keep records and invoices
HMRC requires evidence that assets were bought and brought into use in the correct period. Make sure you have clear documentation.

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Final thoughts

Full expensing is one of the most generous capital allowances ever offered in the UK — and it’s now a permanent feature of the tax system. But just because it’s here to stay doesn’t mean it should be ignored.

With Corporation Tax at up to 25%, every qualifying purchase you make could trigger a meaningful reduction in your year-end tax bill. Whether you’re investing in new equipment, upgrading IT, or kitting out a new facility, this is one area where timing really does pay off.

At Merranti, we help limited companies maximise capital allowances, optimise Corporation Tax, and plan purchases around their unique financial calendar. If you’re thinking of buying before April — or wondering what qualifies — we’re here to help.

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Thinking of investing before year-end?
Book a capital allowances review with Merranti and make sure every pound you spend works twice as hard — now and at tax time.