Unveiled in the Spring Budget, itʼs the highlight of what the government calls its new ʻcapital allowances offerʼ. But what is full expensing? And will it benefit your business?
Full expensing can be used for expenditure incurred by companies on or after 1 April 2023 and before 1 April 2026. At present, itʼs temporary though the government aims to make it permanent as soon as it can. It permits a 100% claim for capital allowances on the purchase of qualifying plant and machinery, so that the cost of investment gets written off in one go, in the year of purchase. It applies to qualifying new main rate plant and machinery: in particular, plant and machinery must be new and unused; must not be a car; must not be given to the company as a gift, or bought to lease to someone else.
For certain other types of plant and machinery, long life assets, and integral features of buildings, which donʼt qualify for full expensing, a 50% first-year allowance can be claimed. This allowance comes with the same conditions as full expensing. Relief on the balance of expenditure comes in subsequent accounting periods and is given at the 6% rate of writing down allowances for special rate expenditure.
In practice, full expensing will impact only a limited number of businesses. Itʼs a tax relief for companies, not unincorporated businesses or partnerships. And itʼs a change that matters almost exclusively to companies planning capital expenditure over £1 million – the Annual Investment Allowance (AIA) limit.
Itʼs not just companies that have to get to grips with new rules on capital allowances. Thereʼs change as well for unincorporated businesses and partnerships. For some years, the AIA limit has been set temporarily at £1 million. This has put pressure on businesses to get major capital expenditure into the window before the £1 million limit fell.
The good news is that the limit is now permanent. Most businesses should now be able to claim 100% first-year relief for expenditure on qualifying plant and machinery. Itʼs worth noting in passing that tax relief on the purchase of cars doesnʼt come via the AIA. Itʼs given through writing down allowances, with rates determined by CO2 emissions and date of purchase. Enhanced capital allowances are available for new and unused electric cars.
When you time capital sales and purchases can be critical, so for the optimal tax outcome, we always recommend advance preparation.
If you would like more information or any advice on this article then please get in touch with us on 01295 250401 or email solutions@ellacotts.co.uk. You can also contact us here with your query and we will get back to you.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
