In this article, we define the Full Expensing and explain how it works, what assets qualify, why it was introduced, and how we can help companies to maximise claims for this generous tax relief.<\/p>\n\n\n\n
Full Expensing is a first-year allowance that allows businesses to reduce their tax liability and free up their cash flow by providing a 100% deduction of in respect of qualifying expenditure incurred towards new plant and machinery.<\/p>\n\n\n\n
It\u2019s a form of tax relief for UK businesses, allowing them to deduct some or all of an item\u2019s cost from their taxable profits. Different types of allowances include\u00a0Plant and Machinery Allowances (PMA)<\/a>,\u00a0Structures and Buildings Allowances (SBA)<\/a>\u00a0and\u00a0Research and Development Allowances (RDA)<\/a>.<\/p>\n\n\n\n Full Expensing follows super deduction (which ended on 1 April 2023) and was originally set to last from April 2023 to March 2026, but it has now been made permanent<\/a> as part of a drive to simplify and improve Capital Allowances for business in the UK.<\/p>\n\n\n\n Before Full Expensing, businesses would have received tax relief over several years through writing down allowances (WDAs) where qualifying expenditure incurred was in excess of the Annual Investment Allowance (AIA) of \u00a31m, but they can now write off the cost of their main pool investments all at once, in the year of the expenditure with no upper limit (usually 14% per annum writing down allowance). In this article we answer frequently asked questions around Full Expensing to help organisations make the most of this valuable Capital Allowances scheme.<\/p>\n\n\n\n From 1st April 2023, any company that is subject to UK Corporation Tax (CT) can receive a 100% first-year allowance for qualifying \u2018main pool\u2019 plant and machinery expenditure. For main pool expenditure, the plant and machinery must be new and unused, and the item can\u2019t be either a gift or leased to someone else. It also includes commercial vehicles except for cars.<\/p>\n\n\n\n Along with the 100% First-Year Allowance for main pool expenditure, there is also a 50% First-Year Allowance for \u2018special rate pool\u2019 expenditure and long-life assets. Examples of special rate expenditure include integral features such as air conditioning, lifts, escalators, and general lighting systems. It can also include thermal insulation in existing buildings, solar panels, and assets with a useful life of over 25 years.<\/p>\n\n\n\n Plant and Machinery Allowances (PMA) are a type of tax relief that allows businesses to reduce their taxable profits. There is no statutory definition of plant or machinery in the current tax legislation, although machinery should be fairly self-explanatory. This meaning of the words is driven by a number of conditions established following many years of case law. Broadly speaking though, plant would typically exclude land, structures, and buildings.<\/p>\n\n\n\n The full expensing Capital Allowance can be claimed on plant and machinery assets. Examples include:<\/p>\n\n\n\n If a company has sold an asset, they must repay some of that relief by adding a portion of the sale price back to their taxable income \u2013 this is known as a \u201cbalancing charge\u201d.<\/p>\n\n\n\n With full expensing, a company must add the entire sale price back to their taxable income.<\/p>\n\n\n\n With the 50% first-year allowance, a company must add 50% of the sale price to their taxable income.<\/p>\n\n\n\n Full Expensing was first introduced as a way of incentivising businesses to invest in new machinery and equipment in the hope that this would stimulate economic growth and modernisation. When it was announced, it was expected to boost business investment by 3.5%<\/a>.<\/p>\n\n\n\n As with super deduction, Full Expensing has been considered a success by the government, which believes the measure will boost business investment by \u00a314 billion. The generosity and simplicity of the scheme has also been broadly welcomed by many businesses.<\/p>\n\n\n\n Companies can now commit to long-term projects requiring significant capital investment over a number of years in the knowledge that they will be able to obtain tax relief of up to 25 pence from every pound invested in qualifying plant and machinery purchases.<\/p>\n\n\n\n This tax saving means businesses will have more ready capital to invest in new equipment and machines, invest in other areas such as research and development, or hire new staff to help their business (and subsequently the UK economy) prosper and grow.<\/p>\n\n\n\n Annual Investment Allowance (AIA) is also a First-Year Allowance that gives 100% relief for plant and machinery investments, with a limit of up to \u00a31 million per year; Full Expensing has no such limit.<\/p>\n\n\n\n Full Expensing is only available for incorporated businesses, whereas most partnerships and unincorporated businesses (such as sole traders) can use the AIA.<\/p>\n\n\n\n While investments in second-hand assets or items bought for leasing aren\u2019t eligible for Full Expensing, you can utilise AIA for those items.<\/p>\n\n\n\n We\u2019re here to help you to reduce your organisation\u2019s tax burden.<\/p>\n\n\n\n Our team of\u00a0Capital Allowances<\/a>\u00a0specialists have extensive industry experience from a range of backgrounds, including quantity surveyors, chartered accountants and tax professionals. As such, they can quickly understand the intricate details and identify where assets are eligible for claiming relief. Their expertise is especially valuable for complex cases, such as for large industrial plants and construction projects, as they can look beyond obvious assets and help identify all qualifying expenses during the review process. This can lead to significant additional savings.<\/p>\n\n\n\n Get in touch<\/a>\u00a0today to find out how we can maximise your Capital Allowances claim.<\/p>\n\n\n\n If you enjoyed this article, you may also like:<\/p>\n\n\n\n In this article, we define the Full Expensing and explain how it works, what assets qualify, why it was introduced, and how we can help companies to maximise claims for this generous tax relief. What is Full Expensing? Full Expensing is a first-year allowance that allows businesses to reduce their tax liability and free up […]<\/p>\n","protected":false},"author":42,"featured_media":1962,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[109],"tags":[],"expertise":[470],"class_list":["post-1885","article","type-article","status-publish","format-standard","has-post-thumbnail","hentry","category-capital-allowances","expertise-capital-allowances"],"acf":[],"yoast_head":"\nHow does Full Expensing work?<\/h2>\n\n\n\n
What is plant and machinery for Capital Allowances purposes?<\/h2>\n\n\n\n
On what type of assets can Full Expensing be claimed?<\/h2>\n\n\n\n
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As noted above, it\u2019s important to remember that neither \u2018plant\u2019 nor \u2018machinery\u2019 is specifically defined in Capital Allowance legislation, so while obvious assets like desks and chairs in an office may be easy to identify, this is not the case for all assets that are eligible for Full Expensing.<\/p>\n\n\n\nWhat happens when a company sells an asset it has already claimed full expensing on?<\/h2>\n\n\n\n
Why did the government introduce Full Expensing?<\/h2>\n\n\n\n
What is the difference between the Annual Investment Allowance and Full Expensing?<\/h2>\n\n\n\n
How we can help<\/h2>\n\n\n\n
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