machinery will be eligible to claim a
100% first-year allowance (FYA) for main rate assets. This means companies
across the UK will be able to write off the full cost of plant and machinery in
the year of investment, saving up to 25p on their tax bill for every £1
invested in qualifying expenditure - dependant on the level of company profits.
Companies investing in special rate
assets (including long life assets) will also benefit from a 50% FYA during
this period.
As with the super-deduction, which ended
on 31 March 2023, the plant and machinery must be ‘new and unused’ and excludes
expenditure on cars and assets purchased for leasing.
The Annual Investment Allowance (AIA),
which provides 100% tax relief on qualifying capital expenditure and was
permanently set at a limit of £1 million in the Budget, can be used in
conjunction with the full expensing allowance.
Where possible, companies are able to
utilise their available AIA against expenditure not covered by full expensing
(i.e. second hand and leased assets) or against special rate assets in priority
(before utilising the 50% FYA).
It is worth noting that full expensing
has not been extended to unincorporated businesses (i.e. sole traders and
partnerships), but such businesses are entitled to claim the AIA which offers
the same benefits as full expensing for investments up to £1 million.
Where a company sells an asset, on which
it has claimed either full expensing or the 50% FYA, there are special disposal
rules which apply. Care will therefore need to be taken for businesses that
have frequent turnover of plant and equipment.
For the disposal of an asset on
which a company has claimed full expensing, the company will be required to
bring in an immediate balancing charge equal to 100% of the disposal value.
This means that if a company
sells an asset for £10,000 on which they had claimed full expensing, they would
be required to increase their taxable profits by £10,000.
A similar position applies
where the 50% FYA has been claim on special rate assets. In this circumstance,
the disposal proceeds are split between the immediate balancing charge and
adjustment to the special rate pool.
It is expected that larger businesses
will continue to benefit from full expensing over the next three years,
simplifying claims and investment decisions – with the Office for Budget
Responsibility (OBR) forecasting an increase in business investment by 3% for
every year the policy is in place.
Whereas smaller businesses,
with annual capital investment up to the value of £1 million, will likely
continue to benefit from using the AIA.
