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On 22 November 2023, Chancellor Jeremy Hunt’s Autumn Statement announced measures to “unlock business investment” including changes and consultations on capital allowances.

Full expensing should become permanent (see below, subject to legislation), but a further vaguely outlined consultation will also be launched to potentially simplify capital allowances!

Full Expensing (Companies Only)

• Introduced at Budget 2023, this is a First Year Allowances (FYA) regime applying for companies within the charge to Corporation Tax (CT) only (so not partnerships, individuals etc).
• Applicable for capital expenditure incurred from 1 April 2023, with plans to make this permanent (originally planned to end at 31 March 2026).
• The rates are as follows:
  • Main (or General) Pool Plant is 100% (previously 18%, ignoring the temporary Super Deduction),
    • Includes IT, furniture, security and telecoms systems, fire alarms, machinery etc.
  • Special Rate Pool becomes is 50% (previously 6%, ignoring the temporary SR Allowance),
    • Includes heating, air conditioning, ventilation, hot and cold-water systems; lifts; electrical systems; and long-life assets.
• Assets must be new and unused, so not second-hand.
• For a Property Company, the leasing exclusion below does not apply to Background Plant and Machinery.
  • Background plant includes most normal systems fixed or adjacent a property.
• Does not apply to the general exclusions for FYA (CAA2001 s46 (2)) including:
  • The period where the qualifying activity is permanently discontinued,
  • The provision of a car,
  • Gifted assets,
  • Plant and Machinery leasing trades (e.g., ship chartering), but see proposed consultation below.
• For disposals, a balancing charge will apply:
  • For General Pool full expensing items, an immediate charge will be taken of 100% of the disposal value,
  • For 50% Special Rate, an immediate charge will be 50% of the disposal value, with the other 50% being deducted from the special rate pool.
  • For fixed plant (“fixtures”), the above can still be mitigated by completing a CAA2001 s198 election on sale for a low value. 

Consultations

Two consultations are proposed:

• Simplifying, condensing, or reducing capital allowances legislation.
  • This will focus on plant and machinery allowances, but will not extend the scope of what qualifies,
  • It will not consider other capital allowances e.g., Structures and Buildings Allowances (SBA) or Research and Development Allowances,
  • It will not consider the rates for Full Expensing, FYA, the Annual Investment Allowance, or writing down allowances.
• Full expensing
  • Whether genuine plant and machinery leasing could be included in the FE regime for lessors.

The previously announced Investment Zones regime was tweaked, to extend these to a 10-year life.

Investment Zones / Freeports

Budget 2023 announced 12 growth clusters to cover the following areas:

• West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool.  There will also be at least one in each of Scotland, Wales, and Northern Ireland.
  • Most of the specific locations have now been announced.
• The Investment Zones tax relief will last for 10 years (this is an extension from 5 years) and matches the Freeports regime (which was also extended to 10 years).  Details of that regime are included below:
  • The regime includes 100% Enhanced Capital Allowance available to companies installing new or unused qualifying plant and machinery.
    • ECA available for all qualifying activities, including a property business, when assets primarily used in the Freeport.
  • The regime includes 10% Enhanced Structures and Buildings Allowance (SBA) available to businesses for qualifying assets brought into use before 30 September 2031 (this extended date reflects the 5-year extension).
    • SBA available where the first contract for construction is dated on or after the date the Freeport site / Investment Zone is designated.

No changes below, but a useful reminder, particular for the AIA as this applies to any business type, unlike Full Expensing.

Annual Investment Allowance (AIA) 

• The 100% AIA is £1,000,000 and is the permanent level of AIA.
  • As a reminder, the AIA allows a 100% deduction for qualifying plant and machinery expenditure upto the AIA limit incurred in a business, company, or group of companies.
  • Given the Full Expensing regime only applies to companies, the AIA will still have value for qualifying partnerships, individuals etc.
  • Above the AIA, the usual capital allowances writing down allowances apply.
  • It is recommended to use the AIA against special rate expenditure first, as the AIA provides more tax relief than the 50% rate noted above.

Super Deduction

The Super Deduction rules ended as planned on 31 March 2023.

• Expenditure incurred before this date on general pool plant will qualify for the 130% relief.
• If you have an accounting period other than 31 March 2023, the Super Deduction rate is proportionally reduced for those months after 31 March 2023.
  • Therefore, you must split the expenditure into pre and post 31 March.
  • Then calculate the appropriate Super Deduction percentage for the additions incurred before 31 March.
  • Full Expensing (as noted above) should then apply for the additions incurred after 31 March.