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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

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

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