No Limit to Capital Allowances with Full Expensing

Over the past two years, commencing from April 2021 until April 2023, companies have benefited from the exceptionally advantageous Super Deduction 130% capital allowances rate for qualifying expenditures.

However, this provision is now slated to be replaced by a new ‘permanent’ Annual Investment Allowance limit of £1 million, which ensures complete relief in the year of purchase.

While this amount suffices for many small-scale businesses, larger enterprises, particularly those operating within group structures, find it woefully insufficient.

What is ‘Full Expensing’?

To alleviate concerns faced by substantial, capital-intensive businesses, the Chancellor presented a measure known as ‘Full Expensing’ relief during the Spring Budget.

Under this scheme, companies are granted unlimited 100% relief on capital expenditure at the main rate, encompassing items such as machinery, office equipment, computer hardware, and software.

The 50% First Year Allowance for assets qualifying for the special rate pool remains unchanged, covering expenditure on integral building features such as electrics, lighting, plumbing, heating, air conditioning, lifts, as well as long-life assets, solar panels, and, in certain circumstances, thermal insulation of buildings.

Do certain conditions apply to ‘Full Expensing’?

Naturally, certain conditions apply to Full Expensing, akin to those associated with the Super Deduction. Namely, assets must be newly acquired and unused, and in most cases, they cannot be utilised for leasing or renting out to third parties.

The £1 million Annual Investment Allowance is still accessible in addition to Full Expensing, and it is most beneficial for expenditures that do not qualify for Full Expensing relief. Furthermore, the Annual Investment Allowance can be utilised for Special Rate expenditure, making it a more favourable option compared to the 50% First Year Allowance.

However, it is essential to be mindful of the downside of Full Expensing. Since companies receive complete relief under this provision, any proceeds obtained from asset sales will trigger an immediate balancing charge, which, at the new corporation tax rate of 25%, should not be disregarded.

Therefore, although exceptions may exist as outlined above, if the expenditure meets the eligibility criteria, the limit truly becomes nonexistent!