What qualifies
Plant and machinery, in the tax sense, is wider than it sounds: excavators, dumpers, telehandlers, compactors, scaffolding, site cabins, generators, tools, racking, computers, and commercial vehicles (vans, pickups classed as commercial, lorries). Not cars, which have their own slower rules. Not buildings, though some fixtures within them qualify.
The reliefs
| Relief | What it covers | Rate |
|---|---|---|
| Full expensing | New and unused plant and machinery bought by a company | 100% deduction in the year of purchase, no cap |
| Annual investment allowance (AIA) | New or second-hand plant and machinery, companies and unincorporated businesses | 100% on the first £1m of qualifying spend per year |
| Writing-down allowances | Anything above the AIA, and special-rate assets | 18% or 6% a year on the reducing balance |
For a £1m–£15m contractor, almost every purchase falls inside full expensing or the AIA, which means the full cost comes off taxable profit in the year it's bought.
What it's worth
A £120,000 excavator bought by a company paying corporation tax at 25% reduces the tax bill by £30,000 in the year of purchase. A £45,000 van, £11,250. Fifteen thousand pounds of tools and site equipment over the year, £3,750. These are not marginal.
Hire purchase: the one everyone gets wrong
On hire purchase you own the asset at the end. For capital allowances, HMRC treats you as owning it from the start: the allowance is available on the full purchase price in the year the asset is brought into use, not spread across the instalments. The interest element of the payments is a separate, ongoing deduction. A groundworks firm we took on had four years of excavators, dumpers and a lorry on HP, and not one allowance claimed. £140,000 of corporation tax recovered by amending two years of returns.
Leasing is different. On an operating lease you don't own the asset; the rentals are simply a deductible expense. Whether to lease or buy is a cash and utilisation question first and a tax question second.
How to check your own position
- Get the fixed asset register from your last accounts and walk the yard with it. Mark anything on the register that's gone, and anything in the yard that isn't on it.
- For every asset bought in the last four years, including HP, check the corporation tax computation for a capital allowance claim. Your accountant can show you the capital allowances schedule; if they can't, that's an answer in itself.
- List the omissions. Amended returns can usually go back two years. Older omissions may still be claimable through the pool going forward.
- Put a process in place: every purchase over £500 goes on the register with the date brought into use, the finance type and the allowance claimed.
Timing a purchase around year-end
If you need the kit and profits are high this year, buy before year-end and take the relief now. If next year's profits will be higher, or you're near a marginal-rate threshold, it may be worth waiting. The asset must be brought into use, not just ordered, by the year-end. And never buy £120,000 of plant to save £30,000 of tax if you didn't need it; it still costs £90,000.
Disposals
When you sell an asset on which full relief was claimed, the proceeds are taxable (a balancing charge). Selling a fully-expensed excavator for £60,000 adds £60,000 to taxable profit that year. It's not a trap, just something to plan for, and another reason the asset register has to match the yard.
Sources
Questions people ask
Can I claim capital allowances on a double-cab pickup?
Rules changed in 2025: most double-cab pickups are now treated as cars for capital allowances and benefit-in-kind purposes, which means slower relief. Single-cab pickups and vans remain commercial vehicles. Check the current position before buying.
What if I bought the asset personally and the company uses it?
The company can't claim allowances on an asset it doesn't own. Either sell it to the company at market value (then the company claims) or charge the company a hire fee. Talk to your accountant before doing either.
Does full expensing apply to second-hand plant?
No, only new and unused. Second-hand plant qualifies for the annual investment allowance instead, which gives the same 100% relief up to £1m a year.
How far back can I amend a corporation tax return?
Generally within 12 months of the filing deadline for that return, which in practice means the last two years. Beyond that, unclaimed allowances can usually still be brought into the pool and relieved going forward.
About the author. Chris Neuman is the founder of Taxtful, accountants and advisers to UK construction companies turning over £1m to £15m. Taxtful is construction-only: every client, every template, every conversation. This article is general guidance, not advice on your circumstances; rates and rules change, so check the current position before acting.