Full capital expensing: What is it and how can my business benefit?
One of the most beneficial aspects of March’s Budget for UK businesses was the introduction of ‘full expensing’ for investment in expenditure on qualifying new plant and machinery.
In place for an initial three years with a view to making it permanent, the initiative aims to encourage businesses to invest in new plant, machinery and equipment to set themselves up for the future and keep money moving throughout the economy.
In this article we summarise what’s been announced, what this means for British businesses, and how you can take advantage.
What does ‘full expensing’ mean?
The new scheme essentially enables businesses to deduct every pound invested on qualifying new main rate plant, machinery and IT equipment in full from taxable profits.
Not only is it designed to make investing more attractive to businesses at a time many are still feeling the effects of the pandemic whilst contending with today’s pressures, it will also help to reduce the impact of the increase to Corporation Tax.
The Chancellor, Jeremy Hunt, estimated it would lead to a 3% increase in business investment a year, with the Office for Budget Responsibility (OBR) saying it provides a strong incentive for businesses to bring forward any investment that had been planned for a later date.
The scheme began in April 2023 for three years and replaces the super-deduction, which ended as planned on 31 March 2023.
Which assets are eligible?
The scheme applies to new and unused plant and machinery which has been purchased for own use rather than being gifted to the company or bought to lease out.
Most tangible capital assets, other than land, structures and buildings, used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.
A few examples of plant and machinery which may qualify for full expensing include:
- Machines such as computers, printers, lathes and planers
- Office equipment such as desks and chairs
- Vehicles such as vans, lorries and tractors (but not cars)
- Warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers
- Tools such as ladders and drills
- Construction equipment such as excavators, compactors, and bulldozers
- Some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential properties
Expenditure on second-hand assets and those bought to lease to someone else can still qualify for the Annual Investment Allowance, which allows businesses to claim 100% of the cost of certain plant and machinery up to £1m in the year it is incurred and is available for all businesses including unincorporated businesses and most partnerships.
Is now a good time to invest?
Any business which would benefit from buying new or upgrading existing plant and machinery should consider whether this scheme provides an extra incentive to do so.
Keeping your plant and machinery up to date and functional brings a number of benefits, including helping your business increase productivity, maintain efficiency and reduce repair bills.
A common question when it comes to buying new plant and machinery is how to finance it. Many pieces of equipment are expensive and outright purchase might be unaffordable or risk putting a strain on cash flow.
With hire purchase, you can spread the payments for new plant and machinery over a longer period. As well as avoiding the need to pay for the asset outright, the fixed monthly payments help with budgeting and, at the end of the agreement, your company will have the option to buy the kit.
The Finance & Leasing Association has confirmed that hire purchase-funded investments will still qualify for full expensing, enabling you to deduct the cost of the asset from taxable profits.
Other funding facilities can also help by generating the cash that’s required to purchase new assets.
How can I find the right funding facility?
Where a business is keen to take advantage of this scheme and requires funding for new plant and machinery, we’d be pleased to help.
An award-winning commercial finance broker with more than 25 years’ experience, Hilton-Baird Financial Solutions has a proven track record of introducing businesses to the most suitable and supportive facilities and lenders.
By understanding your business and its requirements, we can identify suitable options to help you fund your purchase.