Full Expensing vs AIA: Which Capital Allowance Should You Claim?

Both Full Expensing and the Annual Investment Allowance can give you 100% tax relief on capital expenditure – but they work differently, have different limits, and suit different businesses.

The Bottom Line

If you're a limited company buying new plant and machinery worth more than £1 million, Full Expensing is clearly better – it has no annual cap. For spending under £1m, AIA gives the same 100% relief and also covers second-hand assets.

Sole traders and partnerships can only use AIA. Companies buying a mix of new and used equipment will often use both: Full Expensing for new main-pool assets and AIA for second-hand or special rate items.

Quick Comparison

Factor	Full Expensing	AIA
Relief rate (main pool)	100%	100%
Annual limit	No cap	£1,000,000
New assets
Second-hand assets
Special rate assets	50% FYA	100% (within limit)
Available to sole traders
Available to partnerships
Available to companies
Cars included
Disposal clawback	Balancing charge on proceeds	Pool adjustment
Shared between associated companies	No	Yes (£1m shared)

Worked Example: £1.5m Equipment Purchase

A limited company buys £1.5 million of new manufacturing equipment. Here's how the two allowances compare:

Full Expensing

• Year 1 relief: £1,500,000 (100%)
• Remaining in pool: £0
• CT saving at 25%: £375,000
• All relief claimed immediately

AIA Only

• Year 1 relief: £1,000,000 (AIA limit)
• Remaining in pool: £500,000
• Year 1 CT saving at 25%: £250,000
• Excess gets 18% WDA over many years

In this scenario, Full Expensing saves £125,000 more in Corporation Tax in the first year because the full £1.5m is deducted immediately. With AIA alone, the £500,000 excess enters the main pool at 18% per year, taking many years to fully relieve.

When to Use Each

Choose Full Expensing when:

You're a limited company buying new main-pool assets
Your capital spend exceeds £1 million in the year
You want maximum Year 1 deduction with no cap
You have associated companies sharing the AIA limit

Choose AIA when:

You're buying second-hand assets
You're a sole trader or partnership
Total spend is within the £1m limit
You want 100% relief on special rate assets (AIA gives full relief; Full Expensing gives only 50%)

Use both together when:

You're buying a mix of new and second-hand equipment
You want Full Expensing on new main-pool items and AIA on special rate or used assets

Special Rate Assets: The Key Difference

One area where AIA has a clear advantage is special rate assets – integral features (electrical systems, lifts, heating), long-life assets, and thermal insulation.

Under Full Expensing

50% First-Year Allowance – remaining 50% enters special rate pool at 6% WDA/year

Under AIA

100% relief in Year 1 (within the £1m limit) – no balance carried forward

For a company installing £200,000 of integral features, AIA gives £200,000 of Year 1 relief. Full Expensing gives only £100,000 in Year 1, with the other £100,000 relieved at 6% per year – taking over 15 years to fully claim.

Calculate Your Relief

Full Expensing Calculator

100% relief on new main-pool assets

AIA Calculator

Up to £1m on new & second-hand assets

Frequently Asked Questions

What is the difference between Full Expensing and AIA?

Full Expensing gives unlimited 100% relief on new main-pool plant and machinery but is only for companies and only for new assets. AIA gives 100% relief up to £1 million per year but covers both new and second-hand assets and is available to sole traders and partnerships too.

Can I claim both Full Expensing and AIA?

Yes. A company can claim Full Expensing on new main-pool assets and use AIA for second-hand assets or special rate items. However, you cannot claim both on the same asset – it must be one or the other.

Which is better – Full Expensing or AIA?

For companies spending over £1m on new main-pool assets, Full Expensing is better because it has no annual cap. For spending under £1m, including second-hand equipment, AIA is often the simpler choice. Sole traders must use AIA as Full Expensing is not available to them.

Do special rate assets qualify for Full Expensing?

Special rate assets receive a 50% First-Year Allowance under Full Expensing (not the full 100%). The remaining 50% enters the special rate pool at 6% WDA per year. Under AIA, the same assets can receive 100% relief up to the £1m limit.