​Full Expensing: Transforming Capital Investment in the UK

Starting from 1 April 2023 until 31 March 2026, UK corporations can benefit from a significant tax advantage. Full expensing allows a complete first-year tax deduction on qualifying plant or machinery expenditures, effectively reducing the immediate cost by 25%. This move aims to enhance business investment, potentially extending beyond 1 April 2026 based on the UK Chancellor's decision.

Context and Impact of Full Expensing

Initially, when the corporation tax rate was set to rise to 25% in March 2021, the super-deduction was introduced as a cushioning measure. Yet, given the persistent economic challenges, the UK Government recognised the need for further incentives for business investment. Thus, the announcement of full expensing in this year's Spring Budget marks a pivotal step, offering a straightforward, generous tax relief for substantial plant and machinery investments.

Eligibility and Exclusions

Eligibility for full expensing is straightforward: it applies to expenditures on assets typically included in the main pool, like manufacturing equipment, IT, and software investments. However, it excludes spending on buildings, structures, land, and certain assets like cars and leased items. The relief is available for new and unused assets, with specific timing and procedural requirements for making a claim.

Special Rate First-Year Allowance

For assets in the special pool, such as electrical systems and long-life assets, a 50% first-year allowance is available. This marks a significant acceleration from the standard 6% writing down allowances.

Considerations for Disposal and Further Points

It's crucial to note the 'clawback' feature: if assets qualifying for these allowances are sold, the proceeds become taxable. For example, if a company spends £1 million in 2023 and then sells those assets for £500,000 in 2024, the proceeds are taxed in the disposal period. This differs from pooled expenditures, which are not fully taxed immediately. Additionally, the allocation of losses and the timing of spending on multi-year projects are critical considerations for maximising the benefit of this relief.

Your insights and experiences with full expensing are valuable. How do you foresee it impacting your business strategy? Please share your thoughts and questions in the comments below.