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First introduced in March 2023 as a temporary measure, it was announced in the recent Autumn Statement that ‘full expensing’ would become a permanent feature of the tax legislation.

Whilst the Chancellor was keen to herald this as the ‘biggest business tax cut in history’, for many businesses it may be the case that they have already been benefiting from another tax relief that achieves the same saving.

What is full expensing?

It is a tax relief that applies only to companies and provides for 100% tax relief for expenditure incurred on new and unused plant and machinery. Most tangible capital assets, other than land, structures and buildings, used in the course of a business are considered plant and machinery for tax purposes.

Some examples of the type of assets that may qualify as plant & machinery are:

  • machines such as computers, printers, lathes and planers
  • office equipment such as desks and chairs
  • vehicles such as vans, lorries and tractors (but not cars)
  • warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers
  • tools such as ladders and drills
  • construction equipment such as excavators, compactors, and bulldozers

The legislation also provides for a 50% first-year allowance for a class of assets that are often referred to as ‘integral features’. This Includes heating, air conditioning, ventilation, hot and cold-water systems; lifts; electrical systems, solar panels; and long-life assets.

So, at first glance, this regime does appear to be generous but as alluded to above, many businesses will have been taking advantage of another tax relief that is equally if not more generous. This relief is called the Annual Investment Allowance (AIA).

Like full expensing, the AIA provides for 100% tax relief for expenditure incurred on plant and machinery. Whilst it is subject to an annual limit of £1m, it has a number of advantages over full expensing:

  • It is available to all businesses and not just companies.
  • It can be claimed on the purchase of used/second-hand assets as well as new assets
  • 100% tax relief can be claimed on integral features as well as plant and machinery
  • Record keeping requirements are less onerous compared to full expensing

In summary, where a business has the choice of claiming full expensing or AIA, the preference should be to make a claim to AIA.

Previous research has indicated that the vast majority of businesses (around 97%) do not spend more than £1m per annum on capital expenditure and therefore will not need to take advantage of full expensing.

For the small number of companies that do, it will be possible to use full expensing to ensure that they get 100% tax relief for their ‘excess’ expenditure.

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McBrides Chartered Accountants