Enhanced Capital Allowances, the scheme that gave businesses 100% first-year tax relief on energy-saving and water-efficient plant and machinery, closed on 1 April 2020 for companies and 6 April 2020 for unincorporated businesses.1GOV.UK. Capital Allowances: Ending Enhanced Allowances for Energy and Water Efficient Plant and Machinery If you are looking for full write-off relief on capital spending today, the two main routes are full expensing for companies and the Annual Investment Allowance for every kind of business. Separate first-year allowances still run for zero-emission cars and electric vehicle chargepoints until 2027.
What Enhanced Capital Allowances Were
Under the ECA scheme, a business could write off the full cost of qualifying energy-saving or water-efficient equipment in the year of purchase. Two government lists set the boundary: the Energy Technology List for energy-efficient products and a separate Water Technology List for water-efficient equipment. The asset had to appear on the relevant list at the time of purchase, and it had to be new and unused.
Both schemes closed in April 2020. The Energy Technology List still exists as a reference tool for identifying energy-efficient products, but buying from it no longer triggers an automatic first-year allowance.2Energy Technology List. Purchasers Businesses that made qualifying purchases before the cut-off dates can still benefit on those earlier returns, subject to the usual amendment time limits. Everyone else needs to look at the reliefs that took over.
Full Expensing for Companies
Full expensing lets companies within Corporation Tax deduct 100% of the cost of qualifying main-rate plant and machinery in the year of purchase. It was introduced in April 2023 and made permanent in the Autumn Statement 2023, so there is no end date to plan around. Sole traders and partnerships cannot claim it.3GOV.UK. Spring Budget 2023 – Full Expensing
The asset must be new and unused, echoing one of the old ECA conditions. Second-hand equipment, cars, gifts, and assets bought to lease out are excluded.3GOV.UK. Spring Budget 2023 – Full Expensing Equipment that falls into the special rate pool rather than the main rate pool, such as integral features and long-life assets, does not qualify for full expensing but can attract a 50% first-year allowance under the same legislation.
The Annual Investment Allowance
The Annual Investment Allowance (AIA) gives 100% relief on qualifying plant and machinery up to £1,000,000 per year.4GOV.UK. Claim Capital Allowances: Annual Investment Allowance Unlike full expensing, it is open to sole traders, partnerships, and companies. It also covers both main-rate and special-rate assets, so its scope is wider than full expensing on that dimension.
That makes the AIA the key route for unincorporated businesses. A sole trader buying £200,000 of new equipment can deduct the entire cost against trading profits in the year of purchase, the same practical result a company would get through full expensing. Spending above the £1 million cap drops into writing down allowances at 18% (main rate) or 6% (special rate) per year.5GOV.UK. Capital Allowances The AIA also covers second-hand equipment, which full expensing does not.
First-Year Allowances for Zero-Emission Cars and Chargepoints
Two categories keep their own dedicated 100% first-year allowances outside of full expensing and the AIA:
- New, unused zero-emission cars.
- Plant and machinery installed for the purpose of charging electric vehicles.
Both have been extended to 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax.6GOV.UK. Capital Allowances: Extension of First-Year Allowances for Zero-Emission Cars and Chargepoints These matter because cars are excluded from both full expensing and the AIA. Without these dedicated reliefs, a new electric car would sit in the main-rate pool and attract only 18% writing down allowances per year.
What Counts as Plant and Machinery
Full expensing, the AIA, and the remaining first-year allowances all apply only to plant and machinery. HMRC separates assets that function within a business (claimable) from structures and buildings (generally not claimable through these routes). Common claimable items include computers, office furniture, vehicles, tools, and manufacturing equipment.7GOV.UK. What You Can Claim On
A category called integral features sits in the special rate pool rather than the main rate pool. Integral features include lifts, escalators, heating systems, air conditioning, hot and cold water systems (other than in kitchens and toilets), electrical and lighting systems, and external solar shading.7GOV.UK. What You Can Claim On These can still get 100% relief through the AIA or a 50% first-year allowance for companies, but they do not qualify for full expensing.
One boundary worth flagging: equipment bought to lease to another party is excluded from full expensing and the 50% first-year allowance, under Section 46 of the Capital Allowances Act 2001.8GOV.UK. CA23174AC – Capital Allowances Manual The AIA is still available for leased assets, so leasing businesses are not shut out of 100% relief altogether; they just face the £1 million annual cap.
How to Claim
Companies claim through the CT600 Corporation Tax return, which has specific boxes for capital allowances and first-year deductions. Electronic filing is mandatory. Sole traders and partners claim through the self-employment pages of the Self Assessment return, entering the total allowance against business profits.
Deadlines matter. Corporation Tax returns are due 12 months after the end of the accounting period. Self Assessment returns are due by 31 January following the end of the tax year, so a return for 2025–26 must be filed by 31 January 2027. Missing the Corporation Tax deadline brings an automatic £100 penalty on day one, another £100 after three months, then 10% of unpaid tax at six and twelve months.9GOV.UK. Company Tax Returns: Penalties for Late Filing Three consecutive late filings turn those initial £100 penalties into £500 each.
If you forget to claim an allowance, you can amend the CT600 within 12 months of the filing deadline, which effectively gives you up to two years from the end of the accounting period. Self Assessment corrections are allowed within 12 months of the 31 January deadline.10GOV.UK. Self Assessment Tax Returns: If You Need to Change Your Return After those windows close, you have to write to HMRC to request an amendment, which is a harder ask.
Keep invoices that show the itemised cost, purchase date, and enough technical detail to confirm the asset qualifies. Companies must keep records for at least six years from the end of the relevant accounting period. Self-employed individuals and partners must keep them for at least five years from the 31 January submission deadline.11GOV.UK. Business Records if You’re Self-Employed: How Long to Keep Your Records
What Happens When You Sell the Asset
Claiming 100% relief up front means the tax benefit can be clawed back if you later sell, give away, or stop using the asset for business purposes. This is called a balancing charge, and it adds value back to your taxable profits.12GOV.UK. Capital Allowances When You Sell an Asset
If you claimed full expensing on the full cost of the asset, the balancing charge equals the disposal value, which is usually the sale price. If only part of the cost went through full expensing, the balancing charge is the disposal value multiplied by the proportion originally claimed, with the remainder deducted from your main-rate pool in the normal way.13GOV.UK. Disposing an Asset if You Claimed Full Expensing or 50% First Year Allowance For assets you wrote off through the AIA or another first-year allowance, the disposal value is deducted from the pool; if the pool balance is already zero, which is common after a 100% write-off, the whole disposal value becomes a balancing charge.12GOV.UK. Capital Allowances When You Sell an Asset
The disposal value is normally the sale price, but you must use market value instead if you gave the asset away, kept it for personal use, or sold it below market value to a connected person.12GOV.UK. Capital Allowances When You Sell an Asset
Penalties for Getting the Claim Wrong
Over-claiming, whether by including non-qualifying assets, inflating costs, or using the wrong pool, exposes you to HMRC’s inaccuracy penalties. The band depends on the behaviour:
- Careless errors: 0% to 30% of the extra tax that would have been due.
- Deliberate errors: 20% to 70% of the extra tax.
- Deliberate and concealed errors: 30% to 100% of the extra tax.
The ranges exist because HMRC reduces penalties when you cooperate: telling them about the error, helping them quantify it, and giving them access to records. A careless mistake disclosed promptly can result in a 0% penalty, meaning nothing to pay beyond the tax itself. An error found by HMRC during an enquiry, where the taxpayer was uncooperative, sits at the top of the band. If you realise you have over-claimed, correcting the return yourself inside the amendment window is by far the cheapest way to fix it.