UPDATED: The government will be replacing super deduction tax relief with the three-year “full expensing” regime from April 1, 2023.
Full expensing allows companies across the UK to write off the full cost of qualifying plant and machinery investment in the year they invest. It can be deducted “in full and immediately” from taxable profits. It is effective from April 1, 2023 to March 31, 2026.
Equipment includes but is not limited to:
- Warehousing equipment such as forklift trucks
- Tools such as ladders and drills
- Construction equipment such as bulldozers and excavators
- Machines such as computers and printers
- Vehicles such as tractors
- Lorries and vans
- Office equipment such as chairs and desks
- Some fixtures such as kitchen and bathroom fittings
- Fire alarm systems
Full expensing is available to companies subject to corporation tax only. Unincorporated businesses cannot claim, but such businesses are entitled to claim the Annual Investment Allowance (AIA) which offers the same benefits as full expensing for the investments it covers (up to £1m per year).
Hunt hopes to make the scheme permanent “when fiscal conditions allow”.
The Office for Budget Responsibility (OBR) has said that full expensing will help boost business investment by almost 3.5 per cent in 2024-25 and 2025-26.
Find out more on the government’s Spring Budget 2023 website.
The regime has been introduced alongside two other capital allowances:
- The 50 per cent first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until March 31, 2026
- The Annual Investment Allowance (AIA) providing 100 per cent first-year relief for plant and machinery investments up to £1m, which is available for all businesses including unincorporated businesses and most partnerships.
Full expensing is being seen as a way of making up for the corporation tax increase of 19 per cent to 25 per cent, which is still going ahead.
>See also: What is corporation tax?
Companies have been able to claim 130 per cent tax relief through the super deduction scheme since it was introduced in 2021. The scheme is due to end on March 31, 2023.
However, Gregory Taylor, head of banking & finance at MHA, said the problem is full capital expensing isn’t funded beyond the next election. There is only an aspiration to make it permanent, when conditions allow.
The effect of this will be stronger investments in the short term, said Taylor, but worse in the long term if they scheme isn’t made permanent.
“Without the permanent impact of full capital expensing all you are doing is stealing some investment from the future because businesses might think it sensible to move forward their investment decisions to take advantage of it, with the expectation it won’t be continued.”
The shortcomings of super deduction for SMEs
Research from independent finance broker, Charles & Dean, shows that fewer than one in two SMEs (48 per cent) have used the scheme. Of those that did use it, 74 per cent were environment and agriculture-related SMEs. That rate falls to 40 per cent for those in transport and logistics and went as low as 34 per cent for companies in property and construction.
Poor communication was to blame, with one in six not knowing how to claim on the scheme. Almost a quarter (23 per cent) weren’t aware if a business of their size could use the super deduction while 17 per cent didn’t know how to claim it. Meanwhile, 19 per cent said they couldn’t afford to invest, even with the tax break.
Tom Perkins, director and co-founder of Charles & Dean, had this to say on today’s announcement: “While disappointing that the replacement to the super deduction has been cut to a 100 per cent deduction from the previous 130 per cent, it’s promising to see more small business will be able to benefit from the Annual Investment Allowance.”
