Super-Deduction replaced by “Full Expensing”

In the Spring Budget, the Chancellor announced that “full expensing” - 100% relief for new, eligible plant and machinery - would replace the 130% super-deduction from 1 April 2023 for limited companies. This is in addition to the £1 million annual investment allowance (AIA) and will be available for expenditure incurred up to 31 March 2026.

Unlike with AIA, the equipment must be new and must qualify for inclusion in the capital allowances general pool.  The legislation specifically excludes motor cars and assets for leasing. The items purchased are not pooled with other equipment, and a separate record needs to be kept of each piece of equipment. That is because there is a clawback charge based on the disposal value of the asset.

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.

Where a company buys new equipment that would normally be dealt with in the capital allowances special rate pool, such as the installation of air conditioning or central heating, the 50% first-year allowance (FYA) continues to apply until 31 March 2026. The balance of expenditure would then be dealt with in the special rate pool with a 6% writing down allowance per annum on a reducing balance basis. Where the £1 million AIA is available, it would be more advantageous to claim AIA at 100%, rather than the 50% FYA.

For more information, or to discuss full expensing in more detail, please get in touch with our tax experts at js.tax@jsllp.co.uk.