With super-deduction coming to an end on 31st March 2023, the government will be introducing a new Capital Allowance incentive. As a result of measures announced during the Spring 2023 Budget, businesses will be able to benefit from the full expensing scheme as of 1 April 2023.
What is full expensing?
The new full expensing scheme offers companies the chance to claim 100% capital allowances on qualifying new main rate plant and machinery investments. This allows businesses to deduct some or all of the cost of an item from its profits before paying tax with no capital value limit. Currently, this scheme will run from 1 April 2023 until 31 March 2026.
A survey last year showed that businesses indicated a clear preference for full expensing over any of the other options that were being considered. This was down to the simplicity and generosity of the scheme, which allows companies to write off the cost of investment in one go.
How does full expensing work?
So, what does this look like in action? How does it differ from the previous super-deduction? Under full expensing, for every £1 a company invests in plant and machinery, their taxes are cut by up to 25p. The key difference here is that full expensing offsets 100% of the value against taxable profit, whereas super-deduction previously offset 130%.
It’s important to note that full expensing is only available to companies that are subject to Corporation Tax. There are other options available for unincorporated businesses including the AIA; a capital allowance incentive that offers the same benefits as full expensing for investments of up to £1 million per year.
To qualify for full expensing, plant and machinery must be new and unused. It must also not be a car, gifted to a company or bought to lease to somebody else.
Why is the government introducing full expensing?
It goes without saying that investment is a key driver of productivity growth. However, business investment hasn’t been a strongpoint within the UK. In 2021, UK business investment accounted for 10% of gross domestic product (GDP) compared to the Organisation for Economic Co-operation and Development (OECD) average of 12.5%.
To encourage companies to make additional investments, the government introduced the super-deduction in 2021. This was the biggest two-year tax cut in modern British history. This incentive also encouraged businesses to bring planned investment forward whilst the UK recovered from the Covid-19 pandemic.
The introduction of full expensing builds on the success of super-deduction by rewarding businesses that invest and create the right conditions to sustain economic growth. As a result of this measure, the government plan believe the UK’s capital allowance regime will be world-leading.
What assets qualify for full expensing?
Positively, most tangible capital assets (excluding structures, buildings and land) that are used within a business are considered as plant and machinery for the purpose of claiming capital allowances. This can include (but isn’t limited to):-
- Office equipment such as desks and chairs
- Vans, lorries and tractors (not cars)
- Construction equipment such as bulldozers, excavators and compactors
- Manufacturing equipment, food processing and industrial machinery
- Computers, printers, lathes and planers
- Warehouse equipment such as pallet trucks, forklift trucks and shelving and stackers
- Some fixtures such as bathroom and kitchen fittings and fire alarm systems in non-residential property.
Other Capital Allowance incentives
If the full expensing scheme isn’t ideal for your business or your assets don’t qualify, not to worry. There are still other Capital Allowance options to consider:-
- Annual Investment Allowance (AIA) – provides 100% first-year relief for plant and machinery investments up to £1 million. This is available for all businesses (including unincorporated businesses) and the majority of partnerships. Expenditure on second-hand assets and those bought to lease to someone else can still qualify for Annual Investment Allowance.
- 50% First Year Allowance (FYA) – The 50% first-year allowance (FYA) for expenditure by companies on new special rate longer life assets until 31 March 2026. This includes assets with integral features such as lifts, solar panels, air-conditioning and heating units. It also covers fixture assets such as fitted kitchens, bathroom suite and fire alarm & CCTV systems.
Considering purchasing assets?
If you’re considering purchasing new assets, PMD can help you via our dedicated team of experienced professionals. With access to an extensive panel of funders, we can secure the most competitive rates to suit your current needs. Get in touch with us to get more information about the services we provide or to answer any questions you may have around the full expensing scheme.