Spring Budget 2023 Capital allowances changes

From 1 April 2023 the following changes will apply to tax relief currently given on the purchase of qualifying plant and machinery.

100% Full expensing to replace the 130% super-deduction

From 1 April 2023 until 31 March 2026 companies will be able to claim 100% first capital allowances on qualifying plant and machinery additions.

There is no limit on the amount that can be claimed.

Plant and machinery that may qualify includes:

1. machines such as computers, printers, lathes and planers
2. office equipment such as desks and chairs
3. vehicles such as vans, lorries and tractors (but not cars)
4. warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers
5. tools such as ladders and drills
6. construction equipment such as excavators, compactors, and bulldozers
7. some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property. 

50% first year allowance for Special Rate additions to continue

From 1 April 2023 until 31 March 2026 the temporary 50% first year allowance for companies purchasing special rate (including long-life) assets will continue.

This expenditure may include:

8. electrical works
9. heating systems
10. lighting
11. solar panels

The Annual Investment Allowance (AIA) of £1m per annum to be made permanent.

The Annual Investment Allowance (AIA), which provides 100% first-year relief for plant and machinery investments up to £1 million, will continue and be made permanent. 

This is available for all businesses including unincorporated businesses and most partnerships.

Other allowances

Writing down allowances remain the same for main rate and special rate expenditure, 18% and 6% respectively.

Structures and Buildings Allowances on non-residential structures and buildings remain at 3%.

Planning points

1. Companies will need to consider the allocation of the AIA together with any expenditure not eligible for 100% full expensing and/or the 50% Special Rate allowances.

For example, AIA can still be used for leased assets and second-hand expenditure whilst Full expensing and 50% FYA cannot.  The exception to this is where leased assets are classed as “background” plant and machinery in a building meaning landlords and property investment companies may be eligible.

2. Assets receiving 50% Special Rate allowances, or assets that are fully expensed will not enter the main or special rate pool at purchase. This is the same treatment as assets claimed under the 130% super deduction or under 50% Special Rate previously. These must be tracked separately until disposal to ensure that the correct disposal value and balancing charge is applied.

3. Subsequent disposal of fully expensed or 50% Special Rate assets will be subject to an immediate balancing charge equal to 100% of the disposal value for full expensing, or 50% of the disposal value in respect of the 50% Special Rate allowances.

4. Deferred tax on the balance sheet will continue to grow for many companies. Most companies are receiving tax relief under the capital allowance regime faster than the asset is being depreciated or written down in their statutory accounts.

For more detail : https://www.gov.uk/government/publications/full-expensing/spring-budget-2023-full-expensing#the-new-capital-allowances-offer