Budget 2023 – A new capital allowances regime Full Expensing (FE) and 50% First Year Allowance (FYA)

Today, as super deduction comes to an end on 31 March 2023, Jeremy Hunt announced a new capital allowances scheme for companies to stand in its place, called Full Expensing.

Full Expensing comes into force from 1 April 2023 and currently runs to 31 March 2026, although the Chancellor plans to make the scheme permanent. The scheme allows taxpayers to deduct 100% of the cost of certain plant and machinery from their profits before tax, in much the same way as 100% First Year Allowances and the Annual Investment Allowance have done in the past.

The scheme applies to spending on main rate plant and machinery, allowing immediate tax relief for qualifying costs.

Also announced is a 50% first year allowance for special rate plant and machinery that would not qualify for the Full Expensing relief. The 50% first year allowance was already introduced alongside the super deduction and do to end on 31 March 2023 but will now run to 31 March 2026 with the FE scheme.

These schemes are in addition to the Annual Investment Allowance (AIA) with £1 million threshold for all businesses providing 100% tax relief for the cost of qualifying plant and machinery. For 99% of businesses, the AIA already amounts to Full Expensing for their costs. The AIA does however extend to unincorporated businesses and partnerships as well as companies, and this is not the case for the new schemes.

Under the new Full Expensing scheme, the only companies to benefit are those spending more than £1 million each year on plant and machinery. The Government is simply hoping to encourage that 1% minority of companies to spend more for the immediate tax relief and increase spending and investment in the UK economy by those who likely have the cash to spend.

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