New Full Expensing Scheme – will it inject growth into the economy?

It remains to be seen whether the UK’s new full expensing scheme will offset the hike in corporation tax and inject new growth into the economy.

While it remains disappointing that the Chancellor did not reverse the decision to increase the Corporation Tax rate to 25% for profits in excess of £250k, from 1 April 2023, it appears to be balanced by the proposal to make the UK one of the only countries in the world to provide an uncapped 100% deduction for qualifying capital expenditure as a replacement for the super deduction. 

If we had reverted back to the current system of deferring capital allowances then, due to the impact of inflation, this would have meant that an investor would never get tax relief on 100% of the cost of an investment which is a disincentive to invest.

As the full expensing scheme is temporary, with a commitment to make it permanent, it remains to be seen whether in practice it provides enough long-term certainty on which investment decisions can be made. It takes time for businesses to decide where to locate a manufacturing plant, and businesses will remain cautious over whether the new scheme will still be in place when it comes to claiming the relief. The Chancellor should have announced this as a permanent measure to provide greater certainty over the longer term fiscal landscape and boost investment decisions in the UK.

In terms of the corporation tax rate, it undeniably remains an important consideration factor in where a business locates. It was disappointing therefore that the Chancellor did not commit to reducing or having a lower target rate in the future. On the face of it, the combination of near term economic volatility and the contradiction of sticking with the corporation tax hike and new the new full expensing scheme may dent confidence in the UK as a place to invest and this will have an impact on UK growth.

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