In April 2023, the UK government unveiled a new capital allowance regime, introducing the successor to the Super Deduction called “Full Expensing.” This blog post explores the significant advantages that the Full Expensing regime offers to UK companies. From tax relief to accelerated write-offs, we delve into how this scheme encourages investment in qualifying plant and machinery, helping businesses thrive in a competitive landscape.

What is Full Expensing?

The Full Expensing regime, implemented from 1st April, replaces the Super Deduction tax relief. It allows UK companies subject to Corporation Tax to write off the complete cost of qualifying plant and machinery investments from their taxable profits. This scheme incentivises companies to invest in assets such as machines, office equipment, vehicles, warehousing equipment, tools, construction equipment, and certain fixtures.

Boosting Tax Relief and Accelerating Write-Offs

Under Full Expensing, UK companies can enjoy a three-year period of enhanced tax relief. By writing off the full cost of qualifying assets, businesses can minimise their taxable profits and lower their overall tax liability. This accelerated write-off provides a significant advantage, allowing companies to invest more funds back into their operations.

Eligibility and Qualifying Assets

To benefit from Full Expensing, companies must be subject to Corporation Tax. Qualifying assets include new and unused plant and machinery, excluding cars. From computers, printers, and lathes to office equipment, vehicles, and construction equipment, a wide range of assets fall within the scheme. Some fixtures, like kitchen and bathroom fittings, and fire alarm systems in non-residential property, also qualify.

The Impact of the Corporation Tax Hike

Earlier this year, Chancellor Jeremy Hunt raised Corporation Tax from 19% to 25%. This increase in tax rates aligns with the government’s goal of recouping funds used to support the private sector during the pandemic. Despite the hike, businesses can still benefit from FE and leverage the three-year period for accelerated write-offs.

First-Year Allowance (FYA) for “Special Rate” Expenditure

Companies investing in new special rate assets, including long-life assets, can claim a 50% first-year allowance until 31st March 2026. Although these assets don’t qualify for full expensing, the 50% FYA provides an additional incentive for businesses to invest in long-term assets. Specific conditions apply, and further guidance from HMRC is expected.

Unincorporated Businesses and the Annual Investment Allowance (AIA)

While unincorporated businesses cannot claim Full Expensing, they can still benefit from the Annual Investment Allowance (AIA). The AIA offers similar benefits, covering up to £1 million per year for qualifying capital investments. Second-hand assets and those bought for leasing purposes can also qualify for the AIA.

The Full Expensing regime marks a significant milestone for UK companies, offering a range of benefits to encourage investment in qualifying plant and machinery. From enhanced tax relief to accelerated write-offs, businesses can leverage this scheme to optimise their financial position. By embracing Full Expensing, companies can fuel growth, increase productivity, and stay competitive in today’s challenging business landscape.

Remember, the Full Expensing regime is set to end on 31st March 2026. However, the Chancellor has expressed a desire to make the scheme permanent when fiscal conditions allow. Not sure how to take full advantage of Full Expensing? Get in touch to stay ahead of the game and let us help you drive your business forward.
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Note: Please consult with a qualified accountant or tax advisor for personalised guidance on your specific circumstances.