Budget 2023: Huge Changes for Capital Allowances - Full Expensing Announced
The announcements in today’s budget set out new “Full Expensing” rules that are great news for growing businesses. As the Super Deduction ends this April, many wondered if something would be implemented to replace it. We now know that Full Expensing has arrived for that purpose.
What is Full Expensing?
While we wait for full details and legislation, this is what we know so far:
“Full Expensing” is a 100% First Year Allowance on qualifying Main Pool Plant & Machinery expenditure, available to companies from 1 April 2023. Qualifying Main Pool Assets include, machinery, equipment, computers and furniture to name a few.
For the last two years such expenditure has attracted 130% Super Deductions equivalent to 24.7p tax relief per £1 spent. For companies paying the 25% corporation tax, Full Expensing offers 25p relief per £1 spent. After fears that Super Deductions would drop away without anything to replace it, this is excellent news.
So 100% relief for Plant & Machinery - what about other capital spend?
Things are great for the main pool assets listed above, but what about the Special Rate Pool (integral features)? A further change has been announced; the 50% Super Deduction for Special Rate expenditure will continue from April 2023.
This means for Special Rate assets including electrics, lighting, domestic water, ventilation and air conditioning, the following applies:
- The first £1m of special rate spend gets 100% deducted through the Annual Investment Allowance (AIA).
- 50% of expenditure over the first £1m, gets a 50% first year allowance (FYA).
- The other 50% of spend is added to the Special Rate Pool, attracting writing down allowances at 6% per year.
No changes have been announced for Structures and Buildings Allowances which offer 3% relief per year on structural spend. We expect accelerated relief may be possible in the various Investment Zones announced in the budget. Look out for news on this.
Who are the big winners?
Companies and groups that will spend more than £1m on plant & machinery benefit from these changes. All of their Main Pool Plant & Machinery spend is 100% expensed, meaning more AIA available for special rate spend, which also gets a 50% FYA.
What about everyone else?
Companies who won’t exceed the £1m AIA limit, won’t see any additional benefit here because they are already receiving a 100% FYA allowance on all their Plant & Machinery expenditure. These changes just bring larger companies closer to the benefits already obtained by small and medium companies.
It does not appear that Sole Traders and Partnerships will benefit from full expensing (details pending), but the AIA is still available to them too, and with tax rates as high as 40% or 45%, the potential relief arising from capital allowances claims is significant.
Make no mistake, maximising your business’s capital allowances claim remains vital for all companies, sole traders and partnerships, as the relief remains extremely generous and significantly improves the viability of your capital investment projects.
If you have a future capital project on the horizon, be it a development or property purchase please don’t hesitate to get in touch for a free Capital Allowances Consultation; cal@yes.tax
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