Alongside a roundup of previously announced proposals, the chancellor unveiled several new measures in his Spring Budget on 15 March 2023.
Companies which had expected the super-deduction capital allowances regime to end on 31 March 2023 will instead be able to claim a new 100% first-year allowance for qualifying expenditure on new plant and machinery – described by the chancellor as ‘full expensing’. A 50% FYA will be available for special rate pool expenditure. Full expensing will apply for expenditure incurred between 1 April 2023 and 31 March 2026, and the chancellor indicated a desire to make the new allowances permanent.
While at first glance this appears to be a cut in the allowances available, the 100% FYA offsets the 25% main rate of corporation tax from 1 April 2023. The previous 130% super-deduction allowance applied to the 19% rate of tax.
Although unincorporated businesses are not able to claim ‘full expensing’, the annual investment allowance (AIA) £1m limit is put onto a permanent footing from 1 April 2023 (and legislation will be included in the Spring Finance Bill to that effect).
The CIOT welcomed the introduction of full capital expensing, but said that doing so for just three years initially would create some uncertainty for business.
Adrian Rudd, chair of the CIOT’s Corporate Taxes Committee, said full expensing ‘gives the greatest simplification to the business tax system out of all the options considered by the government in their consultation last year’.
‘Under full expensing it will still be necessary to use case law to distinguish between plant and machinery (included) and buildings (not included),’ he observed. ‘But if an item is considered to be plant, it will not be necessary to determine whether the expenditure on it is capital or revenue. This will create benefits for businesses, advisers and HMRC.
‘Investments that were previously not profitable can become profitable under full expensing, due to the reduction in the cost of capital. However, the extent to which it will incentivise investment is hard to predict, especially if business does not believe that it will last. This is why making the change for just a three year initial period is unhelpful. It is not clear why the government thinks that it may not be affordable in three years when it is now,’ Rudd added.
The Association of Taxation Technicians (ATT) also welcomed plans for further measures to support business investment but warned that only a tiny proportion of businesses would benefit from full expensing.
Senga Prior, chair of ATT’s Technical Steering Group, said: ‘The introduction of full expensing will help the UK’s largest companies with investments in plant and machinery of over £1m to obtain immediate relief from tax and will therefore go some way towards compensating for the loss of the super-deduction.
‘However, it will do nothing to assist the 99% of companies whose qualifying expenditure on plant and machinery is below that level and for whom the AIA already provides full relief,’ Prior said.
Separately, it was also confirmed that a legislative anomaly in the AIA, which could have seen businesses denied relief if they had accounting periods spanning 1 April 2023, will be corrected. Businesses will now be eligible to claim tax relief on 100% of their qualifying expenditure up to the overall £1m annual limit. However, they will only be able to claim annual writing down allowances at the appropriate rate (18%/6%) on the balance.
Alongside a roundup of previously announced proposals, the chancellor unveiled several new measures in his Spring Budget on 15 March 2023.
Companies which had expected the super-deduction capital allowances regime to end on 31 March 2023 will instead be able to claim a new 100% first-year allowance for qualifying expenditure on new plant and machinery – described by the chancellor as ‘full expensing’. A 50% FYA will be available for special rate pool expenditure. Full expensing will apply for expenditure incurred between 1 April 2023 and 31 March 2026, and the chancellor indicated a desire to make the new allowances permanent.
While at first glance this appears to be a cut in the allowances available, the 100% FYA offsets the 25% main rate of corporation tax from 1 April 2023. The previous 130% super-deduction allowance applied to the 19% rate of tax.
Although unincorporated businesses are not able to claim ‘full expensing’, the annual investment allowance (AIA) £1m limit is put onto a permanent footing from 1 April 2023 (and legislation will be included in the Spring Finance Bill to that effect).
The CIOT welcomed the introduction of full capital expensing, but said that doing so for just three years initially would create some uncertainty for business.
Adrian Rudd, chair of the CIOT’s Corporate Taxes Committee, said full expensing ‘gives the greatest simplification to the business tax system out of all the options considered by the government in their consultation last year’.
‘Under full expensing it will still be necessary to use case law to distinguish between plant and machinery (included) and buildings (not included),’ he observed. ‘But if an item is considered to be plant, it will not be necessary to determine whether the expenditure on it is capital or revenue. This will create benefits for businesses, advisers and HMRC.
‘Investments that were previously not profitable can become profitable under full expensing, due to the reduction in the cost of capital. However, the extent to which it will incentivise investment is hard to predict, especially if business does not believe that it will last. This is why making the change for just a three year initial period is unhelpful. It is not clear why the government thinks that it may not be affordable in three years when it is now,’ Rudd added.
The Association of Taxation Technicians (ATT) also welcomed plans for further measures to support business investment but warned that only a tiny proportion of businesses would benefit from full expensing.
Senga Prior, chair of ATT’s Technical Steering Group, said: ‘The introduction of full expensing will help the UK’s largest companies with investments in plant and machinery of over £1m to obtain immediate relief from tax and will therefore go some way towards compensating for the loss of the super-deduction.
‘However, it will do nothing to assist the 99% of companies whose qualifying expenditure on plant and machinery is below that level and for whom the AIA already provides full relief,’ Prior said.
Separately, it was also confirmed that a legislative anomaly in the AIA, which could have seen businesses denied relief if they had accounting periods spanning 1 April 2023, will be corrected. Businesses will now be eligible to claim tax relief on 100% of their qualifying expenditure up to the overall £1m annual limit. However, they will only be able to claim annual writing down allowances at the appropriate rate (18%/6%) on the balance.
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