The Spring Budget, on 15th March 2023, confirmed the removal of the temporary super-deduction capital allowance, and replaced it with a new temporary allowance known as ‘full expensing’. Like super-deduction, the full tax allowance for qualifying expenditure can apply for the year in which the assets are purchased. However, unlike super-deduction, the allowance will apply to the actual cost of the asset rather than the cost inflated by 30%. It should be noted that the size of the allowance in cash terms will be broadly the same under both schemes for companies facing a corporation tax increase from 19% to 25% on 1st April.
The measure will temporarily increase the relief available for capital expenditure on plant and machinery in the year the expenditure is incurred. For qualifying expenditure incurred on or after 1 April 2023 but before 1 April 2026, companies can claim:
- A 100% first-year allowance for main rate expenditure – known as full expensing
- A 50% first-year allowance for special rate expenditure.
It should be noted that full expensing is available only to companies subject to corporation tax acquiring new equipment.
Plant and machinery that may qualify for full expensing includes (but is not limited to):
- 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.
- Some fixtures such as kitchen and bathroom fittings, and fire alarm systems in non-residential property.
For “special rate” expenditure, that doesn’t qualify for full expensing, a 50% first-year allowance (FYA) can be claimed instead. The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. It will now be extended by three years to 31 March 2026.
Businesses can also continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery of up to £1m per year. This includes unincorporated businesses and most partnerships.
Qualifying equipment acquired via hire purchase agreements are subject to any capital allowance that would apply with outright purchase, together with tax relief (charged as a business expense) on the interest element of any such agreement. Equipment acquired using other types of leasing agreement are not subject to capital allowances but all rental payments made in respect of such agreements can be offset against tax in the year that the payments were made.
Disclaimer
BNP Paribas Leasing Solutions is not authorised to provide tax advice. You should consult an accountant in order to understand the tax consequences of any investment decision.
Andy Milsom, Head of Partner Training & Development at BNP Paribas Leasing Solutions
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.
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