CAPITAL ALLOWANCES - WHAT'S NEW?

Released On 12th Sep 2023

In his spring budget, the Chancellor announced the following measures on Capital Allowances. From April 2023:

Companies incurring qualifying expenditure on new plant and machinery before 1 April 2026 will be able to claim either a 100% or 50% First Year Allowance (FYA). The 100% allowance is known as ‘full expensing’. This will not apply to sole traders or partnerships and replaces the 130% super-deduction from 1 April 2023 which also only applied to limited companies.
The temporary £1m Annual Investment Allowance (AIA) limit is made permanent (applies to companies, sole trades and partnerships).
100% FYAs on electric vehicle charge-points are extended to 31 March 2025 for Corporation Tax purposes and 5 April 2025 for Income Tax purposes.

With the AIA limit now fixed at £1m, this will give all businesses 100% tax relief in the year of investment for qualifying plant and machinery up to this limit.

If expenditure in a single tax year exceeds £1m on qualifying expenditure a company will be able to take advantage of the full expensing rules.

Further details about each relief can be seen below. Careful consideration will need to be given to the new rules and how they will work for you and your business. There are also transitional rules relating to the withdrawal of the 130% super-deduction which further complicate matters.

Full expensing

From 1 April 2023:

Spring Finance Bill 2023 will introduce full expensing for three years.
Companies incurring qualifying expenditure on new plant and machinery on or after 1 April 2023 and before 1 April 2026 will be able to claim:100% First Year Allowances (FYAs) for main rate expenditure (‘full expensing’).50% FYAs for special rate expenditure, including long-life assets.
The allowances will not apply to second-hand assets and the general exclusions in s.46 CAA 2001 will apply, meaning allowances will not be available on cars or most plant and machinery acquired for leasing.
Disposals of plant or machinery where full expensing or a 50% FYA have been claimed will be subject to immediate balancing charges. These will be 100% of the disposal value in the case of full expensing. 50% of the disposal value in the case of the 50% FYA.
Balancing charges will be reduced proportionately if an allowance is claimed in respect of only part of the expenditure.
An anti-avoidance provision will apply to counteract arrangements which are contrived, abnormal or lacking a genuine commercial purpose.

130% Super-deduction

Where the company’s year end straddles 31 March 2023, the amount of super-deduction is pro-rated. For example, if the company had a year end of 30 September 2023, and incurred expenditure on a new machine before 31 March 2023, there would be 115% relief for that equipment. A new lorry purchased in May 2023 would only qualify for 100% full expensing.

Annual Investment Allowance (AIA)

From 1 April 2023:

Spring Finance Bill 2023 will include measures to make permanent the temporary £1m AIA limit.
Existing transitional rules applying to chargeable periods straddling 1 April 2023 will be repealed.

First-Year Allowance (FYA): Electric vehicle charge points

From 1/6 April 2023:

Spring Finance Bill 2023 will include measures to extend the 100% FYA for electric vehicle charge-points by two years to 31 March 2025 for Corporation Tax purposes and 5 April 2025 for Income Tax purposes.