What Is Full Expensing?
Full expensing is a capital allowance that lets your limited company deduct 100% of the cost of qualifying plant and machinery from its profits before tax in the year you buy it [1]. Instead of spreading the deduction over several years through standard writing-down allowances, you get the full tax relief immediately.
For an agency paying corporation tax at 25%, each £1,000 of qualifying expenditure saves £250 in tax. That is a direct cash flow benefit, not a deferral. The relief is permanent.
The regime applies to expenditure incurred from 1 April 2023 and is currently legislated to run until 31 March 2026 [2]. The government confirmed in Budget 2025 that full expensing will continue for the duration of the current Parliament [3]. That gives agency founders a clear planning window.
Who Can Claim Full Expensing?
Only companies can claim full expensing and the 50% first-year allowance [1]. Sole traders and partnerships do not qualify. If you run your agency as a limited company, you are eligible. If you are a sole trader or partnership, you are limited to the Annual Investment Allowance (AIA) instead, which caps relief at £1 million per year on most plant and machinery [4].
This distinction matters. Many agency founders start as sole traders and incorporate later. If you are still unincorporated, full expensing is not available to you. Incorporation changes your options here. Our services page covers how we help agency founders through that transition.
What Assets Qualify?
To qualify for full expensing, the plant and machinery must be [1]:
- New and unused (not second-hand)
- Bought on or after 1 April 2023
- Not a car
The 100% first-year allowance covers most plant and machinery that would otherwise go into the main rate pool. That includes computers, office furniture, servers, design software, cameras, recording equipment, and machinery used directly in your agency's trade [2].
For assets that would normally go into the special rate pool, such as integral building features, thermal insulation, or long-life assets, you can claim a 50% first-year allowance instead [5]. The same conditions apply: new, unused, company only.
If you buy an asset that qualifies for full expensing, you cannot also claim the 50% first-year allowance against the same expenditure [1]. You pick one.
What Does Not Qualify?
Several categories are explicitly excluded [5]:
- Cars (any type)
- Second-hand assets
- Assets held for leasing
- Gifted assets
- Ships and railway assets
- Transfers between connected persons
- Assets with a useful life of more than 50 years
If your agency buys used MacBooks from a departing team member, that does not qualify. If you lease equipment to clients, that does not qualify either. Stick to new, in-house assets for your claim.
How Does It Work in Practice?
Say your agency buys £24,000 of new computer equipment and office furniture in May 2025. Under full expensing, you deduct the full £24,000 from your trading profits in the year ending 31 March 2026. At a 25% corporation tax rate, that saves £6,000 in tax.
Compare that to the old system. Before full expensing, that £24,000 would have gone into a main rate pool and attracted writing-down allowances at 18% per year on a reducing balance. Year one relief would have been roughly £4,320. Full expensing gives you £24,000 relief in year one. That is a significant cash flow advantage.
There is a catch on disposal. If you sell the asset later, you must bring a balancing charge into account equal to 100% of the proceeds (or 50% for special rate assets) [5]. The relief is immediate, but the tax charge on disposal is also immediate. Plan for that.
Full Expensing vs Annual Investment Allowance
The AIA also gives 100% relief on qualifying plant and machinery, but it has a £1 million annual cap [4]. Full expensing has no cap. If your agency spends £1.5 million on qualifying assets in a year, full expensing covers the whole amount. The AIA would cap at £1 million, leaving £500,000 to go through writing-down allowances.
For most agency founders, the AIA cap is more than enough. A 12-person digital agency billing £800k per year is unlikely to spend £1 million on equipment in a single year. But if you are scaling fast, opening a new office, or fitting out a studio, full expensing removes the cap entirely.
One practical point: you cannot claim both full expensing and AIA on the same asset. You choose the most beneficial route. For companies, full expensing is usually better because it has no cap. For unincorporated businesses, the AIA is the main route.
What About the 50% First-Year Allowance?
Special rate assets qualify for a 50% first-year allowance instead of 100% [1]. These include [5]:
- Integral features of a building (lifts, air conditioning, electrical systems)
- Thermal insulation
- Long-life assets (useful life over 25 years)
If your agency fits out a new office in Manchester's Northern Quarter and spends £60,000 on air conditioning and lighting systems, you can deduct 50% (£30,000) in year one. The remaining £30,000 goes into the special rate pool and attracts writing-down allowances at 6% per year.
The same disposal rules apply. Sell the asset later, and you bring in a balancing charge equal to 50% of the proceeds [5].
How to Claim Full Expensing
You claim full expensing through your company tax return (form CT600). The claim is made in the accounting period in which the expenditure is incurred. You do not need to submit a separate form or apply in advance.
Keep records of:
- Purchase invoices showing the date and cost
- Evidence the asset is new and unused
- Confirmation the asset is used for your agency's trade
If HMRC queries the claim, you need to show the asset qualifies. A supplier invoice dated within the relevant period is your primary evidence.
Your accountant will handle the capital allowance computation as part of your year-end accounts. If you use software like Xero or QuickBooks, tag qualifying asset purchases to a fixed asset account so the cost is captured correctly.
Timing Your Purchases
Full expensing applies to expenditure incurred between 1 April 2023 and 31 March 2026 [2]. The government has indicated it will continue beyond that date, but legislation currently has a sunset clause [3].
If you are planning a significant equipment purchase, consider bringing it forward into the current regime. Waiting until after March 2026 introduces uncertainty. The 40% first-year allowance that applies from 1 January 2026 is a separate, less generous regime [4].
For agency founders, the typical qualifying purchases are:
- Laptops and desktop computers for the team
- Servers and networking equipment
- Office furniture and fit-out (excluding the building itself)
- Cameras, lighting, and recording equipment for content agencies
- Design software licences (if bought as a capital asset, not a subscription)
Subscriptions are revenue expenditure, not capital. You deduct them in full anyway. Full expensing only applies to capital purchases.
Common Mistakes Agency Founders Make
Claiming on second-hand assets. Full expensing requires the asset to be new and unused [1]. Buying used equipment from another business or a former employee does not qualify. Use the AIA instead.
Claiming as a sole trader or partnership. Full expensing is for companies only [2]. If you are unincorporated, you cannot use it. Incorporate first, or use the AIA.
Claiming on cars. Cars are explicitly excluded [2]. No full expensing, no 50% first-year allowance. Cars go through the special rate pool at 6% or main rate at 18%, depending on CO2 emissions.
Forgetting the disposal charge. When you sell an asset on which you claimed full expensing, the balancing charge is 100% of the proceeds [5]. That can create a tax liability in the year of sale. Factor that into your cash flow planning.
Mixing up full expensing with the super-deduction. The super-deduction (130% relief) applied to expenditure from 1 April 2021 to 31 March 2023 [2]. Full expensing replaced it from 1 April 2023. If you are still hearing about the super-deduction, that regime is closed.
Should You Use Full Expensing or AIA?
For most agency companies, full expensing is the better option because it has no cap. If your total qualifying expenditure is under £1 million, both give 100% relief. The difference only matters if you exceed the AIA cap or if you have special rate assets.
If you have a mix of main rate and special rate assets, you can claim full expensing on the main rate assets and the 50% first-year allowance on the special rate assets. You are not forced to pick one regime for everything.
Talk to your accountant before making large purchases. The interaction between full expensing, AIA, and writing-down allowances can get complex, especially if you have a short accounting period or if you buy assets just before year-end.
As ICAEW qualified accountants, we work with agency founders across the UK, from Shoreditch to Bristol Harbourside. If your agency is planning capital expenditure, get in touch to check your full expensing position before you buy.
For more on how agency finances work in practice, read our agency finance essentials series.
Sources
- gov.uk: Claim capital allowances: Full expensing and 50% first-year allowance
- icaew.com: A lowdown on full expensing for SMEs - ICAEW.com
- taxscape.deloitte.com: Deloitte | Capital allowances, permanent full expensing maintained...
- aka.hmrc.gov.uk: Claim capital allowances: Overview - GOV.UK
- accaglobal.com: Full expensing, exclusions to the claim | ACCA Global