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.
Road tax for car drivers is set to rise by 13.4% in line with the retail price index (RPI) from 1 April 2023
The Budget confirmed plans to increase vehicle excise duty (VED) from 1 April by the rate of RPI for cars, vans and motorbikes while rates for HGVs will be frozen for the next year.
For most drivers road tax now starts at £120 a year for cars producing 76-90/km ranging up to £585 (151-170g/km).
The lowest polluting cars that produce 0-75g/km of CO2 will pay the same tax they did in 2021, ranging from zero to £25. There are different rates for cars registered after April 2017.
Legislation will be introduced in Spring Finance Bill 2023 to amend the rates for cars, vans and motorcycles.
Following consultation in 2022, the government will reform the HGV levy from August 2023 following the end of the current levy suspension period.
The reforms to the HGV levy is a further step towards reflecting the environmental performance of the vehicle, focusing more on air quality emissions and levels of CO2 emissions.
For foreign-registered vehicles, the reforms also ensure that the levy is focused on road usage and that it is more clearly aligned with the government’s international obligations.
The reformed levy will be legislated for in Finance Bill 2023 and will take effect from 1 August 2023 following the end of the suspension period for the existing levy in August 2020.
In addition, around £8.8bn is being set aside for a second round of City Region Sustainable Transport Settlements. This will help to develop mass transit networks and sustainable transport options across England’s city regions.
The Chancellor Kwasi Kwarteng is likely to present his fiscal statement to MPs on Friday 23 September, although this is not confirmed.
As parliamentary time is hugely limited by the Queen’s funeral and then the party-political conference season, the Chancellor has only a few options to update MPs and the country on a number of pressing issues, from how the energy bill support will be financed and whether the promised reversal of the 1.5% National Insurance contributions (NICs) hike will go ahead.
The energy bill support will kick in from 1 October for households with little detail available as yet about the plans to help business with soaring energy bills. Yesterday there were indications that detailed plans for business will not be available before the beginning of November, although any measures will be backdated to the beginning of October for businesses, important as the support will only last for six months.
It is worth noting that any changes to NICs would not be instant as they would require the third update of the year to HMRC systems and PAYE software. Some experts are indicating that a minimum of two to three months would be required to ensure a smooth transition to the lower rate. It is also not clear whether the NICs reversal will include employer NICs on top of the employee changes.
The autumn should see a full Budget so it gives the Chancellor some leeway as he could limit any announcements next week and hold them for late October or early November, whenever a Budget is scheduled. This would also give the Office for Budget Responsibility the time to produce a full economic forecast, which takes around 10 weeks to produce.