Out with the old, in with the new
In the Spring Budget on 15 March 2023, it was announced that the temporary super-deduction capital allowance would be removed and replaced with a new temporary allowance known as ‘full expensing’.
Like the super-deduction, with full expensing the full tax allowance for qualifying expenditure can apply for the year in which the purchase is made.
However, the notable difference is that unlike the super-deduction, the allowance will apply to the actual cost of the asset (rather than the cost inflated by 30%), making it in the main, less generous, but still a worthwhile relief for businesses to take advantage of.
However, for businesses now facing the higher level of corporation tax (25%), the overall tax benefit will broadly be the same now, as it was under the super-deduction.
Are you eligible to make a capital allowance claim?
Full expensing is available to companies who are subject to corporation tax and acquiring new (not used) equipment.
It applies for all qualifying expenditure incurred on or before 1 April 2023 and before 1 April 2026.
Furthermore, it must relate to the purchase of qualifying plant and machinery for business purposes.
This can include (but is not limited to):
- Machines, such as computers, printers, presses, lathes and tooling machines.
- Vehicles, such as vans, lorries and tractors (excluding cars, though electric cars may still be able to benefit from a 100% first-year allowance under enhanced capital allowances).
- Office equipment, such as desks and chairs.
- Warehouse equipment, such as forklift trucks, pallet trucks, shelving and stackers.
- Tools and equipment, such as ladders, drills, excavators, compactors and bulldozers.
- Building fixtures, such as kitchen and bathroom fittings and fire alarm systems in non-residential property.
This is not an exhaustive list and further items are covered on GOV.UK here.
It is also worth noting that capital allowances can be claimed for qualifying equipment purchased via hire purchase agreements. This includes claiming tax relief (claimed as a business expense), on the interest incurred from any such agreement.
Whilst other types of leasing agreement are not eligible for capital allowance claims, any rental payments can be offset against tax in the year that the payments were made.
How much capital allowance
tax relief can you claim?
Under the new scheme, qualifying purchases can benefit from:
- A 100% first-year allowance for main rate expenditure – known as ‘full expensing’.
- A 50% first-year allowance for special rate expenditure. This is expenditure that doesn’t qualify for ‘full expensing’, typically integral features, for example, electrical systems, lighting systems, heating and powered ventilation systems, cold water systems etc. However, the remaining 50% of their cost can be claimed through capital allowances over future years, as per the standard rules currently at 6% annually.
- Businesses can continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery (excluding cars) of up to £1 million per year. This includes unincorporated businesses and most partnerships. But only one claim for AIA can be used in a group of companies or individual companies under common control.
With full expensing there is no limit on the amount of expenditure that can be claimed. So, the more that you invest, the more tax relief you can receive. It can also be particularly useful if you have reached the limit for AIA capital allowance claims.
You should note that if you sell an asset on which the new capital allowance reliefs have been claimed, you may need to bring in an immediate balancing charge.
We can help
If you are considering investing in plant or machinery we can assist clients with claiming capital allowances, including:
- Guiding you through making the most of full expensing
- Checking that you are benefiting from the maximum reliefs available to you
- Reviewing your eligibility to claim
- Calculating the relief available to you
- Advising on purchases across transitional periods
- Planning and cash flow management for significant asset purchases
Please contact our tax team to arrange a free, no obligation consultation.
With more than 20 years in tax, Paul provides tax compliance and advisory services to clients, and specialises in R&D and capital allowance claims.