No real winners in Capital Allowance changes

A new full expensing capital allowance on plant and machinery costs will not benefit 99% of businesses, the Association of Taxation Technicians (ATT) has warned.

In today’s Budget, the Chancellor confirmed that the temporary Super-Deduction, which allowed companies to claim a deduction of 130% on plant and machinery acquisition costs, would come to and end on 31 March 2023 as anticipated. However, it will be replaced by a temporary Full Expensing capital allowance of 100%. This is in addition to the Annual Investment Allowance (AIA), which allows the first £1m of expenditure on plant and machinery to be deducted in the year of purchase.

The ATT has welcomed plans for further measures to support business investment with the Super-Deduction coming to an end but says only a tiny proportion of businesses will benefit from today’s announcement.

Senga Prior, chair of ATT’s Technical Steering Group, said:

“The introduction of Full Expensing will help the UK’s largest companies with investments in plant and machinery of over £1m to obtain immediate relief from tax and will therefore go some way towards compensating for the loss of the Super-Deduction.

However, it will do nothing to assist the 99% of companies whose qualifying expenditure on plant and machinery is below that level and for whom the AIA already provides full relief.”

At the same time, it was confirmed that a legislative anomaly in the AIA, which could have seen businesses denied relief if they had accounting periods spanning 1 April 2023, will be corrected. Businesses will now be eligible to claim tax relief on 100% of their qualifying expenditure up to the overall £1m annual limit. However, they will only be able to claim annual writing down allowances at the appropriate rate (18% /6%) on the balance.

Senga Prior continued:

“The ATT had made representations¹ on this anomaly in the AIA legislation and we are pleased that this is now being corrected and that businesses making qualifying purchases can do so knowing that they will be eligible for the entire £1m maximum allowance during their accounting period. “