Budget: Full expensing

Full expensing helps but ‘needs to be permanent’

solar energy
The new allowance should increase investment in renewables

Replacing the super deduction with a full expensing scheme is seen as a helpful measure to encourage investment, but needs to be made permanent to help businesses with planning.

Companies investing in equipment have been able to claim a 130% tax ‘super deduction ‘since 2021. It has cost the Treasury an estimated £25 billion in tax revenue over those two years and although expensive for the taxpayer, it has been regarded as good for business.

The “full-expensing regime” will cost an estimated £22 billion over the same period as the super-deduction.

Sam Richards, founder and campaign director of pro-growth campaign group Britain Remade said full expensing will boost investment in renewables, such as offshore wind and solar.

It would strengthen energy security “while making Britain more competitive when other countries are pouring significant funding into supporting clean energy and renewable technologies,” he said.

“But investments require planning. Businesses need to know they can rely on investment reliefs being there in three years’ time. This matters when a manufacturing business is looking at updating their machinery or a company is planning to invest £100m in renewables and clean technologies; this is why the Chancellor should move quickly to make the new system permanent.

“With the vast majority of major clean energy projects being developed outside London and the South East, increasing investment in clean energy infrastructure will deliver a significant economic boost and job creation in Britain’s former industrial heartlands.” 

Matthew Fell, CBI Interim Director-General, said: “Full capital expensing will keep the UK at the top table for attracting investment and puts us on an essential path to a more productive economy.”

Martin Dye, director at Evelyn Partners, said “The introduction of full 100% expensing for capital expenditure on qualifying plant and machinery will be very welcome by businesses, particularly when faced with the end of the current super deduction coinciding with the increase in corporation tax to 25% from 1 April 2023.

“It will also be welcomed that it is planned to make this permanent after the initial period. This will provide companies with a cash tax saving of 25% on qualifying expenditure and estimated to boost business investment by up to 3.5% a year.”

However, he said many businesses may feel the Government has taken “the least complicated option” rather than take the opportunity “to design a capital allowances regime that promotes their strategies and better rewards investment in innovation, energy and carbon reduction and levelling up.”

How it works – full expensing

  • This lets taxpayers deduct 100% of the cost of certain plant and machinery from their profits before tax. It is effective from 1 April 2023 to 31 March 2026.
  • It applies to spending on main rate equipment, which includes but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems.
  • FE means that companies can deduct 100% of the cost from their profits straight away – rather than more slowly over the life of the asset.
  • Similar to the super-deduction, FE also results in a 25p tax saving for every £1 invested (19% x 130% super-deduction rate = 25%). 
  • Before the super-deduction and with the 19% Corporation Tax rate, companies investing £10m in main rate assets received a £342,000 tax saving in year 1. Under full expensing, on a £10m investment, a company will receive a £2.5m tax saving in year 1.
  • As part of his commitment to maintain a stable economy, the Chancellor’s long-term ambition is to make full expensing permanent.

How it works – 50% first-year allowance (FYA)

  • This lets taxpayers deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings.
  • The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. We are extending it by three years to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).
  • 50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.
  • As part of his commitment to maintain a stable economy, the Chancellor’s long-term ambition is to make 50% FYA permanent.

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