First-Year Allowances (FYA) allow a business to claim 100% capital allowances in the year the expenditure is incurred, rather than spreading relief over time through writing down allowances. In effect, qualifying expenditure is fully deducted from taxable profits in the period of purchase.
Unlike the Annual Investment Allowance (AIA), which is subject to an annual cap, FYA is generally not restricted by a monetary ceiling. However, it only applies to specific categories of expenditure set out in legislation. Where FYA is claimed, the cost does not enter the capital allowance pools.
What Does FYA Apply To?
You can claim ‘enhanced capital allowances for the following equipment, which must be new and unused:
- electric cars and cars with zero CO2 emissions
- plant and machinery for gas refuelling stations, for example, storage tanks, pumps and refuelling equipment for gas, biogas and hydrogen
- zero-emission goods vehicles
- equipment for electric vehicle charging points
- plant and machinery for use in a special tax site in UK Freeports or Investment Zones, if you’re a company
What Does FYA Not Apply To?
FYA generally does not apply to:
- Second-hand or used assets (in most cases).
- Most cars with CO₂ emissions above the qualifying threshold.
- Assets acquired for leasing (subject to exceptions).
- Land and buildings (as they do not qualify as plant and machinery).
- Unincorporated businesses in relation to company-only reliefs such as full expensing.
The 50% First-Year Allowance
When a company invests in its infrastructure, like putting in new air conditioning or upgrading the electrics, the government offers a way to get some of that money back through tax relief. One of the most common ways to do this is through the 50% First-Year Allowance (FYA) for “Special Rate” items.
What counts as a “Special Rate” item?
These are usually integral features of a building. If you could turn the building upside down and shake it, these are the items that would stay attached! Common examples include:
- Electrical systems (lighting and power)
- Heating and cooling (air conditioning or water systems)
- Lifts and escalators
- Solar panels
- Long-life assets (machinery expected to last 25+ years)
How does the 50% relief work?
Imagine your company spends £100,000 on a new, high-efficiency heating system:
- Year 1: You claim £50,000 (50%) as a deduction from your taxable profits right away.
- Year 2 and Beyond: The remaining £50,000 goes into your “Special Rate Pool.” Every year after that, you claim a 6% Writing Down Allowance (WDA) on the leftover balance.
For companies with significant expenditure, it is often advantageous to use full expensing for main rate assets and preserve the £1 million AIA for special rate expenditure, where only 50% FYA is otherwise available.
Disposal of Assets Where FYA Was Claimed
The disposal treatment is often overlooked, but it is critical because FYA assets do not sit in a pool.
1. Assets Where 100% FYA Was Claimed
If 100% FYA was claimed, any sale proceeds generally give rise to a balancing charge equal to 100% of the proceeds. The proceeds are added back to taxable profits and are not deducted from a pool (see Capital Allowances Act 2001 s.59A).
This means the tax relief effectively reverses to the extent of the disposal proceeds.
2. Assets Where 50% FYA Was Claimed
Where a 50% FYA was claimed on a special rate asset:
- 50% of the disposal proceeds are deducted from the special rate pool;
- The remaining 50% gives rise to a balancing charge (see Capital Allowances Act 2001 s.59B).
This creates a hybrid outcome: part pooled adjustment, part immediate tax charge.
Planning Considerations
Because of these disposal rules, claiming 100% FYA can create a future balancing charge if the asset is sold. In some cases, it may be more commercially efficient to use AIA or specific first-year reliefs before claiming full expensing, particularly where early disposal is likely.
As with all capital allowance matters, the outcome depends on the nature of the asset, the status of the claimant, and the timing of acquisition and disposal. The interaction between upfront relief and future balancing adjustments should be reviewed in the context of the wider tax position before making assumptions about the most advantageous claim.
