In the Budget, the Chancellor replaced the super-deduction tax relief with the three-year ‘full expensing’ regime from 1 April 2023
From 1 April 2023 until the end of March 2026, companies will be able to claim 100% capital allowances on qualifying plant, machinery and IT investments.
Full expensing allows companies to write off the full cost of qualifying plant and machinery investment in the year they invest.
The plant and machinery must be new and unused, must not be a car, given to the company as a gift, or bought to lease to someone else.
In his speech, Jeremy Hunt said: ‘We will introduce a new policy of ‘full expensing’ for the next three years, with an intention to make it permanent as soon as we can responsibly do so.
‘That means that every single pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits.
‘It is a corporation tax cut worth an average of £9bn a year for every year it is in place. And its impact on our economy will be huge.
‘This decision makes us the only major European country with full expensing and gives us the joint most generous capital allowance regime of any advanced economy.’
Companies investing in special rate assets will also benefit from a 50% first-year allowance during this period.
This will cut tax for businesses that want to invest, reducing their tax by up to 25p for every £1 they spend.
The Office for Budget Responsibility (OBR) predicts that full expensing will boost business investment by 3.5% every year.
At the same time, the Annual Investment Allowance (AIA) extension, confirmed at the Autumn Statement, provides 100% first-year relief for plant and machinery investments up to £1m, which is available for all businesses including unincorporated businesses and most partnerships.
Martin Dye, director at Evelyn Partners, said: ‘The introduction of full 100% expensing for capital expenditure on qualifying plant and machinery will be very welcome by businesses, particularly when faced with the end of the current super deduction coinciding with the increase in corporation tax to 25% from 1 April 2023.
‘It is disappointing the relief is still only available to companies within the charge to tax and excludes individuals and partnerships with individuals. This does feel like a missed opportunity to better align the capital allowances regime with the government’s wider strategies, particularly as investment decisions being made now will impact the UK’s ability to meet its net zero targets by 2050.’
Paul Pritchard, senior managing director in FTI Consulting’s UK tax practice, said: ‘With the increase in corporation tax to 25%, full capital expensing effectively results in the same economic benefit as the super-deduction it replaces.
‘Whilst full capital expensing is a welcome measure to encourage businesses to invest in new IT, plant and machinery, it is unlikely to benefit loss making businesses.’
The government introduced the super-deduction in 2021 to encourage companies to make additional investments, and to bring planned investment forward as the UK recovered from the Covid-19 pandemic.
The 130% relief allowed companies to cut their tax bill by up to 25p for every £1 they invest. It also granted businesses a 50% first-year allowance for qualifying special rate assets.