Capital allowances: full expensing for companies investing in plant and machinery from 1 April 2023 until 31 March 2026
Published 15 March 2023
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Who is likely to be affected
Companies within the charge to corporation tax investing in plant and machinery on or after 1 April 2023.
General description of the measure
This measure will temporarily increase the relief available for capital expenditure on plant and machinery in the year the expenditure is incurred. For qualifying expenditure incurred on or after 1 April 2023 but before 1 April 2026, companies can claim:
- a 100% first-year allowance for main rate expenditure – known as full expensing; and
- a 50% first-year allowance for special rate expenditure.
Policy objective
This measure is designed to stimulate business investment in plant and machinery by temporarily increasing the tax relief available in the accounting period the expenditure is incurred. The amount of expenditure that can qualify for this measure is uncapped, which means that the more that is invested, the greater the potential tax savings.
Background to the measure
At Spring Budget 2021, the government announced the temporary 130% super-deduction and 50% special rate first-year allowance for qualifying expenditure on plant and machinery incurred on or after 1 April 2021 but before 1 April 2023. The super-deduction was announced alongside the increase to the main rate of corporation tax which will apply from 1 April 2023. Following commitments at Spring Statement 2022, the government has consulted with businesses and wider stakeholders to understand the impact that capital allowances have on investment decisions and how capital allowances can better incentivise investment and improve productivity. This measure will provide businesses with an incentive to invest in productivity-enhancing plant and machinery in the UK.
The government is also making the annual investment allowance (AIA) £1 million permanently, which has been temporarily at this level since 1 January 2019. The AIA provides an equivalent benefit to full expensing for the investment it covers. It would otherwise have reverted to its previous permanent level of £200,000.
Detailed proposal
Operative date
This measure will have effect from Royal Asset of Spring Finance Bill 2023. It will have effect for qualifying expenditure incurred on or after 1 April 2023.
Current law
The current law for capital allowances is contained within Part 2 of the Capital Allowances Act 2001 (CAA01). The rules on first-year allowances are primarily contained within Chapter 4 Part 2 CAA01 and Sections 52-52A CAA01. Chapter 5 contains provisions on pooling, disposal events and disposal values. Chapter 17 contains various anti-avoidance provisions which apply to first-year allowances.
Main rate expenditure is qualifying expenditure on plant or machinery that is not special rate. Special rate expenditure is listed in Section 104A CAA01 and includes, but is not limited to thermal insulation, integral features and long life asset expenditure.
Proposed revisions
Legislation will be introduced in Spring Bill 2023 to introduce new temporary first-year allowances for qualifying expenditure on the provision of plant and machinery incurred on or after 1 April 2023 but before 1 April 2026. Full expensing will be available for main rate expenditure and a 50% first-year allowance will be available for special rate expenditure.
The existing framework of rules for first-year allowances will apply to these temporary allowances, but with separate provisions for disposals. In particular, the general exclusions contained in Section 46 CAA01 will apply, most notably the exclusions of expenditure on cars, and plant and machinery for leasing except where it is under an excluded lease of background plant or machinery for a building. Expenditure must be incurred by a company within the charge to corporation tax and the plant or machinery must be unused and not second-hand.
Disposals of plant or machinery for which full expensing or a 50% first-year allowance has been claimed will be subject to immediate balancing charges. These balancing charges will be equal to 100% of the disposal value in the case of full expensing and 50% of the disposal value in the case of the 50% first-year allowance. The amount of balancing charge will be reduced proportionately if an allowance is claimed in respect of only part of the expenditure.
An anti-avoidance provision will apply to counteract arrangements which are contrived, abnormal, or lacking a genuine commercial purpose. Existing anti-avoidance legislation contained in Chapter 17 CAA01 will also apply to these allowances as normal.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| -1,200 | -7,955 | -10,660 | -8,680 | -1,550 | +2,225 |
These figures are set out in Table 4.1 of Spring Budget 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.
Economic impact
This measure will incentivise businesses to bring forward investment to benefit from the tax relief. In their March 2023 Economic and Fiscal Outlook (EFO), the OBR estimate a boost to business investment by amounts peaking at almost 3½ per cent in 2024-25 and 2025-26.
Impact on individuals, households and families
There is no impact on individuals as this measure only affects companies. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
Businesses who are eligible will receive significant benefits as a result of being able to claim all of their qualifying expenditure in the year the expenditure is incurred.
This measure is expected to have a negligible impact on the administrative burdens of an estimated 7,000 companies that incur qualifying expenditure on plant and machinery in excess of the £1 million annual investment allowance.
One-off costs will include familiarisation with the change and could include updating software to account for the temporary reliefs.
Continuing costs could include maintaining additional records and calculating the balancing charge on disposal. The costs could increase each year as more assets are disposed but these costs will reduce to zero over the long-term.
However, continued administrative savings could be seen for expenditure on which full expensing is claimed as businesses will no longer be required to maintain pools for such expenditure.
The measure is expected to have no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
This measure will have operational impacts on HMRC including staff resources, changes to IT systems and updates to guidance. These impacts are estimated at £6 million.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns and through regular communication with businesses and their representative bodies.
Further advice
If you have any questions about this change, please contact HMRC on email: [email protected].