Capital Allowances and Full Expensing in 2026: A Worked Example for Kent Manufacturers

If you run a manufacturing, engineering or trade business that periodically invests in new equipment, capital allowances are one of the most generous reliefs you have. They let you write off the cost of qualifying plant and machinery against your profits, often in the year you buy it. For Kent SMEs, that can mean a six-figure piece of capital expenditure paying for itself in tax savings far faster than depreciation would suggest.

The trouble is that the rules have shifted three times in the last five years and the right answer in 2026 is no longer a simple “use the AIA”. This post walks through how the regime actually works today, what qualifies, and a worked example for a Kent manufacturer buying £200,000 of new machinery.

The three reliefs that matter in 2026

For most SMEs, three reliefs do all the heavy lifting:

• Full expensing — 100% first-year allowance on most new and unused qualifying plant and machinery. Available to companies only. Permanent from April 2024. No upper limit.
• Annual Investment Allowance (AIA) — 100% first-year allowance on most plant and machinery, new or second-hand, up to £1 million per accounting period. Available to companies, sole traders and partnerships.
• Writing Down Allowances (WDA) — 18% main rate or 6% special rate on the remaining value of assets in the relevant pool, where AIA or full expensing has been used up or does not apply.

There is also a 50% first-year allowance on new and unused special-rate plant and machinery for companies, which is useful if you are spending more than the £1 million AIA on items like integral features (lighting, electrical systems, air conditioning).

What qualifies, and what surprises people

Most plant and machinery used in a trade qualifies for capital allowances. The list is broader than people assume:

• Production machinery, tools and fixtures.
• Computer hardware, servers and printers.
• Commercial vehicles, including vans (but not most cars).
• Integral features in a building — electrical systems, heating, lifts, air conditioning.
• Furniture and fittings.
• Solar panels (special rate pool).

What does not qualify for full expensing or AIA: cars (separate rules apply), gifts to a related party, assets bought for leasing out, and most expenditure on the building structure itself.

A worked example: Smithson Engineering, a Kent SME

Take a fictional Kent engineering company turning over £2.4 million a year with taxable profits of £320,000. In June 2026 they invest:

• £180,000 on a new CNC machining centre (new, qualifies as main pool plant).
• £20,000 on second-hand fork-lift trucks (qualify for AIA, not full expensing because not new).
• £30,000 on integral features for the unit (special rate pool).

That is £230,000 of qualifying expenditure in a single year. Here is how Smithson’s adviser optimises it:

Step 1: Apply full expensing first

The CNC machining centre is new, qualifying main-pool plant, bought by a company. Full expensing claims 100% — that is £180,000 deducted from taxable profits in 2026.

Step 2: Use AIA for the second-hand and special-rate items

The fork-lifts are not new, so full expensing does not apply. AIA does. The integral features are special rate, so they could either go through the 50% first-year allowance or use up AIA. AIA gives a better outcome at 100%. Together that is another £50,000 of relief.

Step 3: Calculate the tax saving

Total qualifying expenditure relieved: £230,000. With profits of £320,000, Smithson now has taxable profits of £90,000 after the allowances. Their corporation tax bill drops from approximately £75,000 (close to the 25% main rate) to around £17,100 (within the 19% small-profits band).

That is a cash tax saving of roughly £57,900 against an investment cost of £230,000. The investment has effectively been subsidised by 25% — not over its useful life, but in the first year.

Where the timing matters

The full effect of capital allowances depends on when the expenditure falls within your accounting year. A few rules to plan around:

1. The asset must be in use, or treated as in use, by the year-end. Order it, take delivery, and ideally have it commissioned before your accounting period ends.
2. Hire purchase counts. You can claim full expensing or AIA on hire-purchase assets in the year the contract begins, even though you are paying over time.
3. Bringing expenditure forward into a higher-profit year creates a better outcome. If your forecast shows next year’s profits below the £50,000 small-profits threshold, you would rather claim the relief this year against the 25% main rate.
4. Disposals create a balancing charge. Selling an asset on which you claimed full expensing brings its proceeds back into tax. Factor this in if you are likely to dispose within two or three years.

Common mistakes we see in Kent

Three recurring patterns are worth flagging:

• Mixing reliefs incorrectly. Some businesses default to AIA even when full expensing would be better, simply because AIA is what they have always used. The two reliefs work differently on disposal, and full expensing is usually the better answer for companies buying new assets.
• Forgetting integral features. When kitting out a unit on the Imperial Business Estate or somewhere similar, the air conditioning, lighting and electrical systems are often capitalised by the developer or builder as part of the building cost. With the right paperwork, they can be reclassified as integral features and claimed by you.
• Missing claims on second-hand acquisitions. Buying a Kent business often comes with embedded fixtures and plant. A professional capital allowances review at the point of acquisition is one of the best-value pieces of tax work an SME can buy.

How MCC Partners helps

For our manufacturing and engineering clients across Kent, capital allowances planning is one of the first conversations we have whenever significant expenditure is on the horizon. Five things make the difference between a textbook claim and an optimised one: timing, paperwork, the choice between reliefs, the treatment of fixtures, and the interaction with the marginal corporation tax band.

Get those right and a planned investment programme can fund itself through tax savings far more comfortably than spreadsheets without an adviser tend to suggest.