The Spring Budget saw the UK government introduce a new capital allowance regime, the successor to the now defunct Super Deduction.
Chancellor Jeremy Hunt replaced the Super Deduction tax relief with a three-year Full Expensing regime from 1 April during last week’s Spring Budget.
Under the new regime, UK companies will be able to write off the full cost of qualifying plant and machinery investment from taxable profits.
Plant and machinery that may qualify include (but are not limited to):
- Machines such as computers, printers, lathes and planers
- Office equipment, such as desks and chairs
- Vehicles such as vans, lorries and tractors (but not cars)
- Warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers
- Tools such as ladders and drills
- Construction equipment such as excavators, compactors, and bulldozers
- Some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property
Full expensing is only available to companies subject to Corporation Tax, which the Chancellor raised from 19% to 25% during the Budget announcements.
The hike in Corporation Tax, paid on company profits, was first suggested two years ago by Rishi Sunak when he was Chancellor under PM Boris Johnson. Sunak said at the time that raising Corporation Tax was justified as a means of clawing back the billions of pounds of public money used to support the private sector during the pandemic of 2020 and 2021.
Also in place is a 50% first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until 31 March 2026. For “special rate” expenditure, which doesn’t qualify for full expensing, a 50% FYA can be claimed instead, subject to the same conditions that apply for full expensing. However, details are yet to be clarified on HMRC’s guidance pages.
Businesses that are unincorporated cannot claim Full Expensing but are entitled to claim the Annual Investment Allowance (AIA), which offers similar benefits for qualifying capital investments (it covers up to £1m per year).
According to the government guidance:
- The plant and machinery must be new and unused, must not be a car, given to the company as a gift, or bought to lease to someone else.
- Expenditure on second-hand assets and those bought to lease to someone else can still qualify for the AIA.
The regime will end on 31 March 2026, however, the Chancellor said he hopes to make the scheme permanent “when fiscal conditions allow”.