TTR Barnes

The Chancellor’s announcement at the Autumn Statement on 22 November 2023 brought a pivotal development for businesses as the full expensing regime (allowing companies to claim 100% capital allowances for qualifying plant and machinery) will no longer expire on 31st March 2026 but will instead be made permanent.

This regime provides a significant advantage for companies paying the main rate of Corporation Tax, offering them tax relief of 25p for every £1 of qualifying expenditure. Alongside this, the 50% first-year allowance for expenditure on new special rate assets is also set to become permanent, further enhancing the tax benefits for businesses.

What is Full Expensing?

Following the end of the Super Deduction in April 2023, the Full Expensing regime was introduced as a replacement driver to encourage business growth and capital expenditure from UK businesses.

Allowing a first-year 100% allowance on all the costs of all NEW qualifying plant, machinery, and other items, full expensing is available in the year the cost is incurred.
Expenditure on plant and machinery for leasing is currently excluded from the scheme, though the government has shown its commitment to exploring possible solutions in this area.

What are the Benefits of Full Expensing?

• Increase cash flow within a business through immediate relief in the same tax year, thus freeing up finances for other investments
• Increase a business’ prospects and efficiencies by opening up the opportunity for new processes and equipment
• Simplify tax calculations and administration by removing the need for complex tracking and managing of depreciation over multiple years
• Demonstrate a higher short-term profitability for a business, which can be advantageous for financial reporting and investor relations.

Complexities with Full Expensing

There have been instances where the complexities of the regime have meant that business expenditure has not qualified for full expensing. For example the Gunfleet Sands vs HMRC case, where the Upper Tribunal ruled that the environmental impact & technical/engineering studies in the establishment of windfarms did not class as qualifying expenditure.
The government has committed to a technical consultation to explore changes to these complexities in the regime, identifying anomalies and challenges in the current system.

The Annual Investment Allowance

Full expensing and Annual Investment Allowance (AIA) are both tax reliefs that can be applied to capital expenditure.

Choosing between full expensing and Annual Investment Allowance (AIA) relief depends on your specific circumstances and financial strategy:

Full Expensing:

• Advantages: Allows you to immediately deduct the entire cost of qualifying assets, providing a significant upfront tax benefit.
• Considerations: Check if your expenditure allows for full expensing. It might be particularly beneficial for businesses looking to maximise immediate tax savings.

AIA Relief:

• Advantages: Provides an annual allowance for qualifying capital expenditures on plant and machinery. It can be useful for businesses with ongoing or phased investments.
• Considerations: Consider the AIA limit set by the government. It might be beneficial if your capital expenditure is within or near the AIA limit, allowing you to spread deductions over multiple years.

Ultimately, the decision depends on your company’s financial goals, the nature of your investments, and the tax circumstances in which you are operating. You should always seek the advice of a professional advisor.

Summary

The announcement that the Full Expensing Regime will be a permanent relief within the UK tax environment is a key opportunity for UK businesses to start planning around this valuable tax reduction.  With no deadline now attributed, businesses are free to start longer-term planning incorporating full expensing.

If you require any advice or support regarding the Full Expensing Regime, please do talk to one of our expert team.

All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article.