Capital allowances full expensing and possible simplification.
As widely expected, the chancellor announced that full expensing of capital expenditure incurred on plant and machinery by companies is to be made permanent from 1 April 2026. This extends the duration of the temporary first-year allowances announced in the Spring Budget which were due to end on 31 March 2026. In the same vein, the 50% first-year allowance for special rate assets will also be made permanent.
The move to permanent full expensing of plant and machinery expenditure is said by the chancellor to be the ‘largest business tax cut in modern British history’. However, full expensing is only currently available for companies and only on main pool plant and machinery which is new, unused and not leased. Plant and machinery expenditure qualifying for the special rate pool will attract a first-year allowance of 50% and then 6% writing-down allowances on the balance. Capital expenditure on cars is specifically excluded, although the leasing exclusion will not apply to ‘background’ plant and machinery fixtures leased with a building.
Even with full expensing, the capital allowances rules will remain complicated. This seems to be borne out by the fact that there is to be yet another consultation on the simplification of capital allowances. An obvious simplification would be to extend full expensing to businesses that pay income tax, thereby removing the need for the £1m annual investment allowance that currently benefits smaller businesses, although special rate expenditure would no longer attract 100% relief in the year of expenditure.
Although the move to permanent expensing will be welcomed by businesses, the government again missed the opportunity to motivate the private sector to invest in green technologies. Whilst it is a fact that capital intensive green industries, such as solar and offshore wind, will benefit from full expensing, there is still no incentive for other businesses to consider net zero carbon options when planning their capital investment expenditure. Whilst it was widely acknowledged that the previous regime of enhanced capital allowances for energy-efficient and water-saving technologies was too complicated, an alternative approach could be a simpler and enhanced tax incentive for businesses to decarbonise their business premises based on the improved energy efficiency.
What was not widely expected was the announcement that the government has been exploring the case for expanding the scope of full expensing to include leased plant and machinery. Historically, the leasing industry has borne the brunt of measures to restrict capital allowances on leased assets. It will therefore be interesting to see what comes out of the planned technical consultation on this issue. One obvious question is whether the government would be able to afford such a measure, bearing in mind that full expensing is already expected to cost approximately £11bn a year.
Finally, the government is extending the tax reliefs in freeports (which includes enhanced capital allowances for plant and machinery and accelerated structures and buildings allowances) from five to ten years. This is a sensible measure that better reflects the time periods associated with the planning, financing and development of capital-intensive construction projects in these targeted areas.
Home >Articles > Autumn Statement 2023: Full expensing
Autumn Statement 2023: Full expensing
Capital allowances full expensing and possible simplification.
As widely expected, the chancellor announced that full expensing of capital expenditure incurred on plant and machinery by companies is to be made permanent from 1 April 2026. This extends the duration of the temporary first-year allowances announced in the Spring Budget which were due to end on 31 March 2026. In the same vein, the 50% first-year allowance for special rate assets will also be made permanent.
The move to permanent full expensing of plant and machinery expenditure is said by the chancellor to be the ‘largest business tax cut in modern British history’. However, full expensing is only currently available for companies and only on main pool plant and machinery which is new, unused and not leased. Plant and machinery expenditure qualifying for the special rate pool will attract a first-year allowance of 50% and then 6% writing-down allowances on the balance. Capital expenditure on cars is specifically excluded, although the leasing exclusion will not apply to ‘background’ plant and machinery fixtures leased with a building.
Even with full expensing, the capital allowances rules will remain complicated. This seems to be borne out by the fact that there is to be yet another consultation on the simplification of capital allowances. An obvious simplification would be to extend full expensing to businesses that pay income tax, thereby removing the need for the £1m annual investment allowance that currently benefits smaller businesses, although special rate expenditure would no longer attract 100% relief in the year of expenditure.
Although the move to permanent expensing will be welcomed by businesses, the government again missed the opportunity to motivate the private sector to invest in green technologies. Whilst it is a fact that capital intensive green industries, such as solar and offshore wind, will benefit from full expensing, there is still no incentive for other businesses to consider net zero carbon options when planning their capital investment expenditure. Whilst it was widely acknowledged that the previous regime of enhanced capital allowances for energy-efficient and water-saving technologies was too complicated, an alternative approach could be a simpler and enhanced tax incentive for businesses to decarbonise their business premises based on the improved energy efficiency.
What was not widely expected was the announcement that the government has been exploring the case for expanding the scope of full expensing to include leased plant and machinery. Historically, the leasing industry has borne the brunt of measures to restrict capital allowances on leased assets. It will therefore be interesting to see what comes out of the planned technical consultation on this issue. One obvious question is whether the government would be able to afford such a measure, bearing in mind that full expensing is already expected to cost approximately £11bn a year.
Finally, the government is extending the tax reliefs in freeports (which includes enhanced capital allowances for plant and machinery and accelerated structures and buildings allowances) from five to ten years. This is a sensible measure that better reflects the time periods associated with the planning, financing and development of capital-intensive construction projects in these targeted areas.
