Fully Expensed: How It Can Save You Money
What Is Fully Expensed?
Starting in April 2023 from the Spring Budget, companies have had the opportunity to claim 100% capital allowances on qualifying investments in plant and machinery. This was originally only until March 2026, but under the Autumn statement, this has been extended indefinitely. This enables companies to deduct the entire cost of their investments at once. Under this new system, for every pound a company invests in eligible assets, their tax liabilities can be reduced by up to 25 pence. By introducing full expensing, the government aims to foster a more competitive and attractive business environment, encouraging increased investment and economic growth.
Who Does Fully Expensed Benefit?
Businesses are set to reap various advantages following the latest policy changes. The introduction of full expensing ensures that companies receive 100% first-year relief on qualifying new main rate plant and machinery investments. Additionally, extending the 50% first-year allowance (FYA) specifically for expenditures on new special rate assets (such as solar panels, lighting, and electrical systems in buildings) further enhances the fiscal benefits for businesses. Moreover, the Annual Investment Allowance (AIA) brings about a notable advantage by providing 100% first-year relief for plant and machinery investments, up to £1 million. This inclusive measure encompasses all businesses, ranging from Limited companies to sole trader businesses and the majority of partnerships. These comprehensive changes aim to stimulate economic activity, foster growth, and innovation across various sectors.
How Does Full Expensing Work?
Full expensing allows companies subject to Corporation Tax to claim a 100% first-year allowance, enabling them to deduct from taxable profits the entirety of their qualifying expenditure incurred in the same year. This benefit, however, is exclusive to new and unused “main rate” plant or machinery and does not apply to gifts, cars, or assets acquired for leasing purposes. While unincorporated businesses are not entitled to full expensing, they are entitled to the Annual Investment Allowance (AIA), offering similar advantages for qualifying investments up to £1 million annually. Notably, second-hand assets and those acquired for leasing may still qualify for the AIA. For “special rate” expenditure that does not meet the criteria for full expensing, a 50% first-year allowance can be claimed, subject to identical conditions. Any remaining expenditure is eligible for capital allowances in subsequent periods at a 6% rate of Writing Down Allowances (WDAs) for special rate expenditure. To determine eligibility, businesses can refer to HMRC’s guidance pages, which will be promptly updated to assist in navigating the distinctions between “main rate” and “special rate” investments.
What Are Plant and Machinery Assets?
For capital allowances, most things a business uses that is “moveable”—like computers, printers, vehicles (except cars), and equipment in offices, warehouses, and construction—are considered plant and machinery. This includes tools, like ladders and drills, and fixtures such as kitchen and bathroom fittings. These items can be eligible for full expensing, which means businesses can deduct their full cost for tax purposes.
Why Fully Expensing Benefits Businesses
Full expensing is a beneficial strategy for businesses, offering advantages such as improved cash flow and promoting increased investment in capital assets. It allows businesses to immediately deduct the entire cost of specific capital investments in the year they are made, reducing tax liability, and enhancing cash flow. This freed-up cash can then be used for additional investments or operational expenses, providing financial flexibility. The immediate tax benefits of full expensing also encourage businesses to invest more in capital assets, promoting productivity, efficiency, and job creation. Unlike the annual investment allowance (AIA), which has a £1,000,000 limit, full expensing has no upper limit on eligible expenditure, giving businesses greater flexibility for sustained growth.
How We Can Help You
We offer a range of accountancy, compliance, and advisory services all tailored to your specific needs. Our teams are experienced in working with large businesses across different sectors and with different organisational structures. To find out how we can help your business be as tax-compliant and efficient as possible, contact us today.