1. Full Expensing is Effective from 1st April 2023

Incorporated businesses will now benefit from full expensing on capital allowances from 1st April 2023 but what does this actually mean:-

• Full expensing – which offers 100% first-year relief to companies on qualifying new main rate plant and machinery investments from 1 April 2023 until 31 March 2026. In other words plant and machinery which falls within the “Main Rates Pool” which therefore excludes “Special Rates Pool” expenditure (see next bullet point).
• The 50% first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until 31 March 2026
• The Annual Investment Allowance (AIA) providing 100% first-year relief for plant and machinery investments up to £1 million, which is available for all businesses including unincorporated businesses and most partnerships.

2. Why has the Government Introduced Full Expensing?

• Investment is a key driver of productivity growth but business investment has been a long-standing weakness in the UK – UK business investment accounted for 10.0% of GDP compared to the OECD average of 12.5% in 2021
• A competitive headline Corporation Tax rate – the UK has the lowest rate in the G7 – alongside generous investment incentives will reward businesses that invest and create the right conditions for sustained economic growth.
• The government introduced the super-deduction in 2021 – the biggest two-year business tax cut in modern British history – to encourage companies to make additional investments, and to bring planned investment forward as the UK recovered from the Covid-19 pandemic.
• Full expensing builds on the success of the super-deduction, allowing companies to write off 100% of the cost of investment in one go.
• In the capital allowances survey last year, businesses showed a clear preference for full expensing over the other options under consideration, on the basis of its simplicity and generosity.
• As a result of this measure, the UK’s capital allowances regime will be world-leading.
• A tax information and impact note for the policy is published [here .]

3. Annual Investment Allowance (AIA)

While Full Expensing only applies to companies who are paying Corporation Tax, individuals and partnerships are still able to claim “Plant & Machinery Fixtures” capital allowances up to £1m per annum. This is by utilising the Annual Investment Allowance which has been set at this maximum level for some time.

In should be noted that it is important to claim capital allowances in the year in which the assets have been purchased or the ability to claim the Annual Investment Allowance for those allowances will be lost and Writing Down Allowances will need to be claimed instead.