Some of the most valuable capital allowances only apply if the asset is new and unused. This "new and unused" condition sits at the heart of full expensing and the 50% first-year allowance, and it decides whether a company can write off the full cost of qualifying plant and machinery in the year of purchase. Getting it right matters, because a second-hand asset is shut out of these particular reliefs, even though it may still attract generous relief through a different route. HMRC has clarified how the test works in borderline cases, and the detail is worth understanding before you buy.
What does "new and unused" mean for capital allowances?
For these allowances, HMRC treats "new" as meaning unused and not second-hand. The asset must not have been used by anyone else, and it must not have been owned by the business for some earlier purpose before being brought into use. Full expensing lets a company deduct 100% of the cost of qualifying main-rate plant and machinery from its profits before tax in the year it is bought. The 50% first-year allowance does the same for special-rate expenditure, such as integral features and longer-life assets. Both are set out in GOV.UK's full expensing guidance, and both require the item to be new and unused, bought from 1 April 2023 onwards.
Which capital allowances need the asset to be new and unused?
Only some do. Full expensing and the 50% first-year allowance carry the new and unused condition, and only companies within the charge to Corporation Tax can claim them. The Annual Investment Allowance (AIA) does not carry that condition. The AIA gives 100% relief on qualifying plant and machinery up to £1 million a year (the level in place since 1 January 2019, per GOV.UK's Annual Investment Allowance guidance), and it is open to companies, sole traders and most partnerships alike. Crucially, GOV.UK confirms that expenditure on second-hand assets, and on assets bought to lease to someone else, can still qualify for the AIA. So a used asset is not shut out of capital allowances altogether. It is shut out only of full expensing and the 50% first-year allowance.
Example. A trading company buys a new, unused production machine for £100,000. As main-rate plant and machinery bought new, it can claim full expensing and deduct the whole £100,000 from its profits before tax. Suppose instead it buys the same model second-hand for £60,000. Full expensing is not available, because the machine is not new and unused. But the £60,000 can still be covered by the AIA, up to that £1 million annual limit, giving 100% relief in the same year. The relief route changes; the cash-flow benefit in this case does not.
What has HMRC clarified about the new and unused test?
HMRC's Capital Allowances Manual sets out how the test applies where old and new elements are mixed. Its guidance at CA23174AB confirms three practical points:
Where expenditure is incurred on upgrading or improving an existing asset by adding new parts, that expenditure on the new parts may qualify for full expensing or the 50% first-year allowance. Where new and unused parts are combined with used or second-hand parts to make an asset, only the expenditure on the new and unused parts may qualify. And where something new has been made from recycled materials, meaning a second-hand asset has been broken down into its raw components and reformed into something new, the resulting asset is treated as unused and not second-hand for these purposes.
Why the distinction matters when you buy
Because full expensing and the 50% first-year allowance are restricted to companies buying new and unused assets, the buying decision has a tax dimension. A company weighing a new machine against a used one should factor in that only the new one attracts these reliefs, while a used one falls back on the AIA. For a sole trader or partnership, full expensing is not on the table at all, so the AIA does the heavy lifting whether the asset is new or second-hand. Where a large capital programme runs beyond the £1 million AIA limit in a year, the new and unused status of each asset can affect how much relief is available and when. This is the kind of timing point that rewards planning in advance rather than at the year-end. Our tax planning team can help you sequence purchases and claims so the reliefs land where they are most useful.
Frequently Asked Questions
Yes. A second-hand asset cannot get full expensing or the 50% first-year allowance, because those need the asset to be new and unused. But GOV.UK confirms it can still qualify for the Annual Investment Allowance, which gives 100% relief on qualifying plant and machinery up to £1 million a year (the level since 1 January 2019).
Full expensing is available only to companies, only on new and unused main-rate plant and machinery, and is not capped. The Annual Investment Allowance is open to companies, sole traders and most partnerships, covers new or second-hand assets, and is capped at £1 million a year. You cannot claim more than one allowance against the same expenditure.
HMRC's guidance says yes. Where a second-hand asset has been broken down into its raw components and reformed into something new, the resulting asset is treated as unused and not second-hand for full expensing and the 50% first-year allowance.
No. Full expensing and the 50% first-year allowance are for companies within the charge to Corporation Tax. Unincorporated businesses use the Annual Investment Allowance instead, which can also give 100% relief on qualifying spend up to the annual limit.
If you are planning capital spending and want to be sure each purchase is claimed the right way, we can review your position and the timing of your claims. Call us on 020 8554 2135 or email info@visionconsulting.co.uk, or visit our contact page.
By the Vision Consulting team.
This is general information, not advice. Your position depends on your circumstances.