In the Spring Budget 2023, the UK Chancellor announced the introduction of the Full Expensing Capital Allowance Regime. This temporary first year allowance is set to run from 1 April 2023 until 31 March 2026, although there have been indications that this may become permanent if economically feasible. ‘Full expensing’ is a 100% first-year allowance which allows companies to claim a full deduction from taxable profits for their qualifying expenditure (uncapped) in the year that expenditure is incurred. This tax relief provides a saving of up to 25p for every pound a company invests and supersedes the previous super-deduction which came to an end on 31 March 2023.
Full expensing is available on qualifying main pool plant and machinery capital expenditure. This may include, but is not limited to, office equipment, furniture, tools, kitchen equipment and storage equipment. While full expensing should be available for capital expenditure incurred on software, where such expenditure is capitalised as an intangible asset, an election may be required to permit such a claim. As full expensing is a first-year allowance, a claim must be made during the period in which expenditure is incurred.
Eligible assets must be purchased in a new and unused condition and must not be a car, not be given to the company as a gift, and not be bought to lease to someone else, as these are specifically excluded. There is a special provision which allows background plant, machinery and fixtures contained within leased properties to be qualifying assets. Special rate assets will not qualify for full expensing, but can instead attract a 50% first year allowance. Company assets acquired from connected parties are also excluded from full expensing.
If a company sells an asset on which it has claimed full expensing, or the 50% first-year allowance, special disposal rules apply. For the disposal of an asset on which a company has claimed full expensing, the company will be required to bring in an immediate balancing charge equal to 100% of the disposal value. For example, if the company bought an asset for £20,000, claimed full expensing, then sold it for £10,000, they would be required to increase their taxable profits by £10,000. As a result, the Annual Investment Allowance (AIA) may be a more attractive option and used in priority, with full expensing becoming relevant where capital expenditure exceeds the £1million AIA limit.
Who can utilise Full Expensing?
Full expensing is a welcomed simplification available to incorporated companies (or corporate partners of a partnership) who are within the charge to UK Corporation Tax. This means unincorporated business, including partnerships and sole traders, will not be eligible. However, these entities will still qualify for the Annual Investment Allowance (AIA) of £1million per annum.
Written by Luke Turner