Full Expensing: Can you use capital allowances to make tax efficient purchases?

Full Expensing: Can you use capital allowances to make tax efficient purchases?

Full Expensing (recently made permanent in the Autumn Statement) is a generous new capital allowances regime which allows companies to claim a 100% deduction on qualifying expenditure upfront.
However, with big tax breaks come big responsibilities. There are strict conditions and documentation requirements to qualify and submit claims correctly.
Here, our Corporate Tax Director, Paul Woodward summarises the main aspects of Full Expensing and how businesses can use it to make tax efficient purchases.

Full Expensing – A background

Full Expensing was first announced at the Spring Budget in March 2023 as a replacement for the temporary super-deduction capital allowance scheme. 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. Full Expensing was subsequently made permanent in the Autumn Statement 2023 and HM Treasury estimates this will cost £9 billion in lost tax revenue.

The notable difference between Full Expensing and the super-deduction, is that Full Expensing applies 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 meeting the higher level of corporation tax (25%) threshold, the overall tax benefit is broadly the same 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 Full Expensing 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.

Full Expensing – Seek proper advice

There are strict conditions and documentation requirements to qualify and submit claims correctly. Even after claims are accepted, HMRC may still review or challenge later on. Proper planning and evidence is essential to avoid problems. We therefore recommend that you seek assistance from your tax advisor when making Full Expensing and capital allowance tax claims.

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.

1279 854 Rouse Partners

Paul Woodward

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. See more

All stories by : Paul Woodward

This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

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