Among the announcements in the Spring Budget, UK chancellor Jeremy Hunt has introduced full expensing as a successor to the super-deduction tax break.
The UK government will replace the super-deduction tax relief scheme with the three-year full expensing regime from 01 April 2023.
Full expensing will allow businesses across the UK to write off the full cost of qualifying plant and machinery investment in the year they invest. It can be deducted “in full and immediately” from taxable profits. It is effective from 01 April 2023 to 31 March 2026.
Equipment includes but is not limited to:
- Warehousing equipment such as forklift trucks
- Tools such as ladders and drills
- Construction equipment such as bulldozers and excavators
- Machines such as computers and printers
- Vehicles such as tractors, lorries and vans
- Office equipment such as chairs and desks
- Some fixtures such as kitchen and bathroom fittings
- Fire alarm systems
Full expensing is available to companies subject to corporation tax only. Unincorporated businesses cannot claim, but such businesses are entitled to claim the Annual Investment Allowance (AIA), which offers the same benefits as full expensing for the investments it covers (up to £1m per year).
Hunt said he hopes to make the scheme permanent “when fiscal conditions allow”.
The Office for Budget Responsibility (OBR) said that full expensing will help boost business investment by almost 3.5% in 2024-25 and 2025-26.
Full expensing will come in from 1 April, cutting tax for companies that want to invest in the UK, reducing their tax by up to 25p for every £1 they spend on plant and machinery.
— HM Treasury (@hmtreasury) March 15, 2023
The regime has been introduced alongside two other capital allowances:
- The 50% first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until 31 March 2026
- The AIA providing 100% first-year relief for plant and machinery investments up to £1m, which is available for all businesses including unincorporated businesses and most partnerships.
Full expensing is being seen as a way of making up for the corporation tax increase of 19% to 25%, which is still going ahead.
Over the last two years, the super-deduction has allowed businesses to cut their taxes by up to 25p for every £1 invested.
However, according to research from independent finance broker Charles & Dean, fewer than one in two SMEs (48%) have used the scheme. Of those that did use it, 74% were environment and agriculture-related SMEs.
That rate falls to 40% for those in transport and logistics and went as low as 34% for companies in property and construction.
Charles & Dean attributed this to poor communication, with one in six not knowing how to claim on the scheme.
Almost a quarter (23%) weren’t aware if a business of their size could use the super deduction while 17% didn’t know how to claim it. Meanwhile, 19% said they couldn’t afford to invest, even with the tax break.
Tom Perkins, director and co-founder of Charles & Dean, said: “While disappointing that the replacement to the super-deduction has been cut to a 100% deduction from the previous 130%, it’s promising to see more small business will be able to benefit from the AIA.”
However, Gregory Taylor, head of banking and finance at MHA, said the problem is full capital expensing isn’t funded beyond the next election. There is only an aspiration to make it permanent, when conditions allow.
The effect of this will be stronger investments in the short term, said Taylor, but worse in the long term if they scheme isn’t made permanent.
“Without the permanent impact of full capital expensing all you are doing is stealing some investment from the future because businesses might think it sensible to move forward their investment decisions to take advantage of it, with the expectation it won’t be continued.”
This year’s co-located IntraLogisteX and Robotics and Automation exhibitions – taking place on 28-29 March 2023 at the NEC Birmingham – represents the final chance for UK businesses to take advantage of the super-deduction tax incentive, which offers a 130% capital allowance on qualifying main rate plant and machinery investments, before the scheme expires on 31 March. Click here to register for your free visitor pass.