UK Full Expensing vs AIA Capital Allowances Guide 2026

Comprehensive UK capital-allowances guide covering permanent Full Expensing for qualifying companies, the 50% special-rate first-year allowance, the £1 million Annual Investment Allowance (AIA), business-car restrictions and the 2026/27 capital-allowance changes.

1. Full Expensing vs AIA Comparison Matrix

UK companies investing in plant, machinery, and equipment can claim tax relief through capital allowances, reducing taxable profits subject to Corporation Tax.

Allowance Mechanism	Eligible Business Types	Statutory Cap & Tax Relief Rate
Full Expensing (Main Rate Assets)	Limited companies subject to Corporation Tax	100% uncapped first-year allowance for qualifying new and unused main-rate plant and machinery; permanent from 1 April 2026
Special Rate First-Year Allowance	Limited companies subject to Corporation Tax	50% first-year allowance for qualifying new and unused special-rate plant and machinery; subject to the statutory conditions

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Key Takeaways

Full Expensing is a permanent 100% first-year allowance for qualifying companies investing in new and unused main-rate plant and machinery, subject to the statutory conditions.
AIA provides 100% relief on qualifying plant and machinery expenditure up to £1 million, subject to the AIA rules.
AIA is available to a broader range of businesses than Full Expensing, including unincorporated businesses.
Second-hand assets can generally qualify for AIA where the other conditions are satisfied, but they do not qualify for Full Expensing.
Ordinary business cars do not qualify for AIA or Full Expensing. The separate 100% first-year allowance for new zero-emission cars is not available for expenditure incurred on or after 1 April 2026; qualifying cars bought from that date generally use the applicable writing-down allowance instead.
Full Expensing does not generally apply to assets bought for leasing to others or other excluded expenditure.
For qualifying main-rate plant and machinery purchased after 1 January 2026, a separate 40% first-year allowance may be available where Full Expensing does not apply and the statutory conditions are met.

Related UK Business & Corporate Guides

UK Corporation Tax 25% Rates & Marginal Relief Guide →UK Small Business Accounting & Record Keeping Guide →

Frequently Asked Questions (6 Interlinked FAQs)

Full Expensing is a 100% first-year capital allowance for qualifying companies on eligible new and unused main-rate plant and machinery. It is permanent from 1 April 2026.

AIA provides 100% relief up to £1 million and is available to a broader range of businesses. Full Expensing is uncapped but is restricted to qualifying companies and qualifying new and unused assets.

Generally yes, provided the expenditure and asset satisfy the AIA conditions. Second-hand equipment does not normally qualify for Full Expensing.

Ordinary business cars do not qualify for AIA or Full Expensing. For expenditure incurred on or after 1 April 2026, the separate 100% first-year allowance for new zero-emission cars is no longer available, so qualifying cars generally use the applicable writing-down allowance.

No. Full Expensing is available to companies within the Corporation Tax regime. Sole traders and partnerships may instead use AIA or other capital allowances where the conditions are satisfied.

For qualifying main-rate plant and machinery purchased after 1 January 2026, companies can claim a 40% first-year allowance where the statutory conditions are satisfied. The remaining expenditure is generally dealt with under the normal capital-allowance rules.

A disposal can create a balancing charge based on the disposal value under the Full Expensing rules, so the original 100% deduction is not simply a permanent tax-free treatment of the asset.