Permanent full expensing relief for companies – Autumn Statement 2023

We previously highlighted how the Spring Budget 2023 brought in changes for tax relief on capital expenditure, to drive investment and growth in UK businesses. 

At the time, the relief was introduced as a ‘temporary’ measure until March 2026, with the Chancellor committing to making the relief permanent as soon as finances allowed. This Chancellor has made good on his promise in the Autumn Statement, by removing the March 2026 termination date for this relief.

Broadly, full expensing allows businesses to fully deduct the cost of plant and machinery (or 50% if the expenditure falls into the special rate category) against taxable profits in the year that the expenditure is incurred.

Coupled with the change in the rate of corporation tax, this meant that companies subject to the main rate of corporation tax would obtain relief at 25p for every £1 spent on qualifying capital expenditure (26.5p and 19p for those companies subject to the marginal and small profits rates respectively).

The relief is meant to replicate the effects of the popular super deduction scheme which allowed tax relief equivalent to 130% of capital expenditure, albeit when the main rate of tax was 19%, thus providing similar overall relief (24.7p on every £1 spent).

It is important to note that the relief can only be claimed by companies and is not available to other businesses such as sole traders and most partnerships. Furthermore, the relief does not apply to all asset types. The items have to be “unused and not second hand” and include all the usual exclusions that apply to first-year allowances – mainly on cars and items for leasing.

On the latter point on leasing, the detailed documentation published after the Autumn Statement confirms that the government will publish a consultation in due course to consider any potential extension to include plant and machinery for leasing, along with other consultations on the simplification of the capital allowances in general.

Mohammed Mujtaba, Corporate Tax Senior Manager at Kreston Reeves, comments: “Although this is a welcome change for driving investment in the UK, it really only effects the biggest of companies in the UK. The current rules allow most businesses (whether trading as a company, partnership or sole trader) to deduct up to £1m of capital expenditure on qualifying plant and machinery against their taxable profits by claiming the Annual Investment Allowance (AIA).

“Most companies do not reach the limit of £1m for general capital expenditure and thus remain unaffected by this new measure, especially where a significant amount of that expenditure is on items within the special rate pool, as might be the case for office fit outs.

“Furthermore, for those larger companies which use the all-important Earnings Per Share (‘EPS’) metric to signal profitability to investors, the full expensing above will merely be a cash flow advantage as the relief on capital expenditure will be offset by an equal and opposite deferred tax liability and thus the EPS remains unaffected”.

Our Autumn Statement 2023 question time webinar is now available to watch on-demand. During the webinar, our panel of tax and business experts came together to examine the changes unveiled by the Chancellor, and to answer your questions. Click here to watch the webinar.

Alternatively, if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.