Full expensing started 1 April 2023

The new 100% first-year capital allowance for qualifying plant and machinery assets known as full expensing came into effect on 1 April 2023. This measure expected to help boost business investment and growth.

The Financial Secretary to the Treasury, said:

“We are determined to make the UK the best place in the world to do business, which is why businesses can start to benefit from the raft of tax cuts on offer to boost their growth. With full expensing, the more a company invests the less tax they’ll pay, and I encourage companies of any size to take full advantage of this world-leading reform.”

To qualify for full expensing, expenditure must be incurred on the provision of “main rate” plant or machinery. It should be noted that full expensing is only available to companies subject to Corporation Tax.

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; and
• some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property.

The new measure will initially apply from 1 April 2023 until 31 March 2026 although this may be extended. The super-deduction that was introduced during the pandemic ended on 31 March 2023. Under full expensing, for every pound a company invests, their taxes will be cut by up to 25p.

For “special rate” expenditure, which 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 also 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.