Author: Matthew Jeffery, Tax Director
On Wednesday 22 November 2023, Chancellor Jeremy Hunt delivered the governments Autumn Statement, in which he announced that the temporary full expensing of qualifying capital expenditure will be permanent.
‘Full-expensing’ was originally introduced from 1 April 2023 with plans to run the scheme until 31 March 2026. However, the Chancellor confirmed that legislation will be introduced to make ‘full-expensing’ permanent, in an attempt to continue to encourage business investment in plant and machinery.
Full expensing is a tax incentive that allows limited companies to write off the full cost of qualifying assets in the year of purchase as opposed to receiving the tax relief over several years. In short, it accelerates the timing of the tax relief received.
The 100% first year deduction is available to limited companies, for expenditure on new and unused plant and machinery. It does not, however, extend to Integral Features within buildings. This includes, electrical, heating & ventilation, water systems and lifts/escalators. Expenditure on these assets gets a 50% first year deduction, followed by 6% of the balance each year after.
However, a first-year allowance for qualifying capital expenditure is not new! Since 2008, businesses have been able to claim a 100% tax deduction for qualifying capital expenditure via the Annual Investment Allowance (“AIA”). Generally, this allowed businesses to claim a tax deduction for the first £1m of qualifying expenditure. For most small businesses, full expending has always been in place for over a decade!
In my opinion, ultimately, the beneficiaries will be large corporations that spend over £1m a year on qualifying capex. The tax incentive should encourage investment and stimulate economic growth, which is what the scheme is designed for.
Unfortunately, contrary to the headlines, it will not have any impact on small or medium sized businesses, who have long been able to claim tax relief on capital investments.
The Chancellor also announced a consultation on the capital allowances regime with the aim of simplifying the current system. The consultation will consider whether further changes to the plant and machinery rules could simplify, condense or reduce existing legislation. It will not consider other capital allowances such as structures and buildings allowances or Research and Development allowances.
While there will be consultation with stakeholders, industry experts and tax professionals, substantive reform of capital allowances and other policy measures are not being considered. Working group meetings will take place from January 2024, with draft legislation being published in Summer 2024.
Disclaimer: At the time of writing (24 November 2023), reasonable care has been taken to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s tax affairs are different, further advice should be sought from a specialist advisor, such as Zeal Tax.
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