To avoid the UK capital allowances regime falling down league tables of international competitiveness after the expiry of the super-deduction at the end of March 2023, the chancellor announced two new capital allowances measures that will provide significant tax savings to companies after the corporate rate increases from 19% to 25% from 1 April 2023.
The two new measures consist of full expensing (FE) for qualifying expenditure incurred on main pool plant and machinery, which previously qualified for the 130% super-deduction, together with a 50% first year allowance (FYA) for expenditure on plant and machinery in the special rate pool.
FE is intended to put the UK at the top of the OECD rankings in terms of the most generous allowances, with a net present value of 100% and a saving of 25p for every £1 invested. The tax saving is almost the same as that from the 130% super-deduction at the 19% corporate tax rate.
Residual expenditure in the special rate pool is claimed at a writing-down allowance of 6%.
Both these measures apply to expenditure on new and unused plant and machinery incurred by companies within the charge to corporation tax for the three years from 1 April 2023 until 31 March 2026. The general exclusions under CAA 2001 s 46 apply, although in keeping with the super-deduction rules, plant and machinery fixtures leased with a building will be eligible, provided the assets meet the definition of background plant and machinery under CAA 2001 s 70R. This is particularly good news for property investment companies.
As with the super-deduction, there will be balancing charges on the disposal of plant and machinery where either FE or 50% FYA has been claimed. Also, there will be anti-avoidance measures that will apply to counteract abuse.
The cost of these measures is expected to be £27bn over the three-year period and the chancellor has stated that both FE and the 50% FYA may become permanent in the future. Whilst all businesses benefit from full tax relief for plant and machinery expenditure up to the annual investment allowance of £1m, it will be the larger corporate businesses that particularly benefit from FE and the 50% FYA.
In addition to these measures, the chancellor also confirmed that 12 new investment zones would be created. Investment within these zones will attract special tax incentives similar in scope to freeports: a 100% FYA for plant and machinery expenditure and a 10% structures and buildings allowance (SBA) rate.
Whilst these measures will be welcomed by companies investing in new plant and machinery, there is a tinge of disappointment that the government has not sought to introduce a dedicated relief or enhanced allowance to incentivise taxpayers seeking to reduce carbon on existing and new buildings.
Home >Articles > Spring Budget 2023: capital allowances after the super-deduction
Spring Budget 2023: capital allowances after the super-deduction
To avoid the UK capital allowances regime falling down league tables of international competitiveness after the expiry of the super-deduction at the end of March 2023, the chancellor announced two new capital allowances measures that will provide significant tax savings to companies after the corporate rate increases from 19% to 25% from 1 April 2023.
The two new measures consist of full expensing (FE) for qualifying expenditure incurred on main pool plant and machinery, which previously qualified for the 130% super-deduction, together with a 50% first year allowance (FYA) for expenditure on plant and machinery in the special rate pool.
FE is intended to put the UK at the top of the OECD rankings in terms of the most generous allowances, with a net present value of 100% and a saving of 25p for every £1 invested. The tax saving is almost the same as that from the 130% super-deduction at the 19% corporate tax rate.
Residual expenditure in the special rate pool is claimed at a writing-down allowance of 6%.
Both these measures apply to expenditure on new and unused plant and machinery incurred by companies within the charge to corporation tax for the three years from 1 April 2023 until 31 March 2026. The general exclusions under CAA 2001 s 46 apply, although in keeping with the super-deduction rules, plant and machinery fixtures leased with a building will be eligible, provided the assets meet the definition of background plant and machinery under CAA 2001 s 70R. This is particularly good news for property investment companies.
As with the super-deduction, there will be balancing charges on the disposal of plant and machinery where either FE or 50% FYA has been claimed. Also, there will be anti-avoidance measures that will apply to counteract abuse.
The cost of these measures is expected to be £27bn over the three-year period and the chancellor has stated that both FE and the 50% FYA may become permanent in the future. Whilst all businesses benefit from full tax relief for plant and machinery expenditure up to the annual investment allowance of £1m, it will be the larger corporate businesses that particularly benefit from FE and the 50% FYA.
In addition to these measures, the chancellor also confirmed that 12 new investment zones would be created. Investment within these zones will attract special tax incentives similar in scope to freeports: a 100% FYA for plant and machinery expenditure and a 10% structures and buildings allowance (SBA) rate.
Whilst these measures will be welcomed by companies investing in new plant and machinery, there is a tinge of disappointment that the government has not sought to introduce a dedicated relief or enhanced allowance to incentivise taxpayers seeking to reduce carbon on existing and new buildings.
