From April 2023 until the end of March 2026, companies can claim 100% capital allowances on qualifying investments through the full expensing relief.
Andrew Tall, Corporate Tax Partner explains: “To incentivise business investment and to fill the void left by the removal of the super deduction in March 2023, HMRC has introduced full capital expensing for the next three years. This means that businesses will receive up to 25p of tax relief for every £1 invested into qualifying main pool assets, such as IT equipment, plant or machinery.”
So, what are capital allowances?
Capital allowances are a type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax.
You can claim capital allowances on:
These are known as ‘plant and machinery’.
A summary of the new incentives
As part of the Spring Budget 2023, the Chancellor announced changes to the capital allowances regime to encourage companies to invest in fixed assets.
The government will introduce temporary First Year Allowances (FYAs) for companies. These FYAs will apply to expenditures on new and unused plant and machinery incurred on or after 1 April 2023 and before 1 April 2026.
These new rules replace the super-deduction and the special rate allowance which expired on 31 March 2023. The Annual Investment Allowance (AIA) remains in place and the limit is £1 million for the tax year 2023/24. The AIA is available for second hand plant and machinery which do not qualify for the FYAs and therefore there may still be an opportunity to obtain an 100% deduction on those additions.
How does full expensing work?
For expenditure qualifying for the main pool, the FYA will be 100% of the expenditure expensed. For items qualifying for the special rate pool, the FYA will be 50% of the expenditure in the first year. There are certain items of expenditure that are excluded from qualifying (these are in line with previous exclusions) such as cars, items received as a gift, and plant and machinery used for leasing. There will be no cap on the expenditure which qualifies for FYAs. These FYAs are only available to companies.
It is important to note that if FYAs are claimed then any consideration received on the disposal of those items will be subject to Corporation Tax.
There will be anti-avoidance provisions in place around the timing of when expenditure was incurred to ensure only additions acquired in the correct timeframe qualify for the reliefs.
If you would like to discuss specific circumstances, please get in touch with Andrew Tall.