The biggest tax relief announced by the Chancellor for businesses is that the full expensing regime has now been made permanent. The policy, announced in the Spring Budget 2023, was originally due to end on 31st March 2026.
Full Capital Expensing (effectively 100% tax relief, called a ‘First Year Allowance’), enables businesses to deduct the cost of any eligible investment from their corporation tax bills in one go, rather than over several years.
Up to April 2023, businesses could only deduct a small fraction of the cost of an investment each year over the accounting lifespan of the investment. In reality, this meant that businesses wouldn’t get the full cost of the investment, because inflation eroded the value of the money firms could claim back in future years. So, the longer the right off time, the less of the cost of the investment that could be written off.
Now, businesses will be able to deduct the cost of any eligible investment from their corporation tax bills straight away.
The full expensing regime allows companies to claim 100% first-year relief on qualifying new main rate plant and machinery investments.
So, companies paying the main rate of corporation tax get tax relief of 25p for every £1 of qualifying expenditure.
Full expensing operates alongside a 50% first-year allowance for expenditure by companies on new special rate assets (such as integral features, long-life assets, etc). This means that a company can claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that expenditure is incurred. The 50% first-year allowance will also become permanent having been also due to end in 2026.
It should be noted that full capital expensing is only available to companies who pay Corporation Tax.
Unincorporated businesses cannot claim, but they are entitled to claim the Annual Investment Allowance which offers the same benefits as full expensing for the investments it covers.
The Annual Investment Allowance is now permanently set at £1million. However, the full expensing regime is not limited to the £1m threshold.
What does this mean for business owners?
As we said in April after the Spring Budget, these changes will mainly be of interest to companies that have already used the £1 million Annual Investment Allowance which is a simpler allowance.
In theory, this is a great policy for construction, engineering, and manufacturing clients.
We had previously criticised the government for imposing the 2026 deadline in the Spring Budget so it’s good to see the policy extended permanently. It gives businesses more certainty and a chance to plan their investments.
Ironically though, removing the 2026 deadline may actually lead to reduced investment as businesses no longer have to push their investments forward.
In reality however, this policy will only really benefit the largest, profitable construction, engineering and manufacturing businesses planning significant investments.
While these large companies have a critical role to play in driving the economy, smaller SMEs or businesses based in service sectors – which make up the majority of UK industry! – will not see much benefit from this announcement.
It’s also true that many businesses are simply trying to get through this difficult economic period, so it’s unlikely that they will be planning any significant investments in plants or machinery.
Giving businesses additional capital allowances entitlement should be applauded but the impact on SMEs and the majority of businesses is unlikely to be as great as the chancellor suggests.
How Leonherman can help:
Capital Allowances are a complex area of UK tax as there are different types of allowances with their own qualifying rules and limits.
Crucially, you need to make sure that your business is claiming allowances wherever possible to reduce your tax bill.
If you’re unsure about what allowances your business is entitled to, then get in touch with us without delay. We will make sure you get the full allowances to which you are entitled.
The Autumn Statement 2023 – Contact Leonherman’s Accounting and Tax Experts
For more information about the key announcements made in the Autumn Statement 2023, read this summary of the key points by Leonherman’s accounting and tax experts and download this guide to each of the announcements.
If you have a question about any of the measures announced by the Chancellor in The Autumn Statement around how they might affect you or your business, please get in touch with us and we would be happy to help.
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This material is published for client information. 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. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.