Full Capital Expensing – Why your business should be using it?

Investment is a key driver of productivity and growth, but business investment hasn’t been possible for numerous businesses recently given many are only just recovering after Covid, and paying their Covid loans, plus we’ve had the rise in both inflation and interest rates.

I’m surprised when I talk to many businesses that they don’t know that the UK government introduced a new capital allowance regime, the successor to the now defunct Super Deduction, which makes business investment and potentially growth a real possibility… it’s called Full Capital Expensing!

What is Full Capital Expensing (FCE)?

FCE allows companies to claim 100% capital allowances on qualifying plant and machinery investments that would usually qualify for capital allowances at 18% per annum, the new allowance is available from 1st April 2023 to 31st March 2026.

Additionally, for plant and machinery that falls under the “special rate” category there is a first-year allowance (FYA) of 50% for these assets that will be applicable during the same period.

Put simply, for every pound a company invests in plant and machinery, they can get up to 25p in tax cuts.

Who / what qualifies for Full Capital Expensing?

To take advantage of FCE your company must be subject to Corporation Tax. Therefore, unincorporated businesses cannot claim. There are other options available for unincorporated businesses including the AIA; a capital allowance incentive that offers the same benefits as full expensing for investments of up to £1 million per year.

Also, the plant and machinery must be new and unused, must not be a car, given to the company as a gift, or bought to lease to someone else.

Below is a list of plant and machinery that the government state may qualify (but 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
• Some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property

Most tangible capital assets, other than land, structures and buildings, used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.

What are my options if I don’t qualify for Full Capital Expensing?

If your business or your assets you want to invest in don’t qualify, there are still other Capital Allowance alternatives to consider:

Annual Investment Allowance (AIA) – provides 100% first-year relief for plant and machinery investments up to £1 million. This is available for all businesses (including unincorporated businesses) and the majority of partnerships. Expenditure on second-hand assets and those bought to lease to someone else can still qualify for Annual Investment Allowance.

50% First Year Allowance (FYA) – The 50% first-year allowance (FYA) for expenditure by companies on new special rate longer life assets until 31 March 2026. This includes assets with integral features such as lifts, solar panels, air-conditioning and heating units. It also covers fixture assets such as fitted kitchens, bathroom suite and fire alarm and CCTV systems.

Thinking of buying plant and machinery?

Regardless, if you decide to use full capital expensing or another capital allowance, it makes sense to make the most of these government tax deduction schemes, because they will allow you to purchase the plant and machinery you need without paying more tax than is required.

If you would like some guidance or to understand what is possible then speak to one of our expert team in the Banking & Finance Team at MHA, because with our many years’ experience in financial services and with an extensive funding panel, we can get the best solution