plant machinery

Capital allowances changes leave small businesses in the cold

22 November, 2023

Making “full expensing” for plant and machinery costs permanent will do nothing to help the vast majority of businesses, the Association of Taxation Technicians (ATT) has warned.

In today’s Autumn Statement,1 the Chancellor confirmed that the full expensing capital allowance of 100%, which was due to run until the end of March 2026, will now become a permanent fixture. 

Full expensing allows UK companies to deduct 100% of the cost of capital equipment from their profits in the year it is bought. It was originally announced at the Spring Budget 2023 as a temporary measure, replacing the Super-Deduction, which expired on 31 March 2023, and allowed companies to claim a deduction of 130% on plant and machinery costs.

The ATT says that, while some larger companies will benefit from today’s announcement, the vast majority will see no change as full expensing applies in addition to the Annual Investment Allowance (AIA), which allows the first £1 million of expenditure on plant and machinery to be deducted in the year of purchase.2

Senga Prior, Chair of the ATT Technical Steering Group, said:

“Putting full expensing on a permanent footing will help the UK’s largest companies to plan their investment in advance and provide some certainty as to the tax relief they will receive.

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. These companies also lost entitlement to the Super-Deduction earlier this year but have received nothing to compensate them for it.

The current capital allowances system can be very confusing. Too much depends on the precise timing of expenditure, fine distinctions between similar types of asset, and the nature and structure of a particular business. It is also subject to frequent changes, making decisions on expenditure more complex.

We think there is a real opportunity to rationalise the capital allowance system to increase its effectiveness, make it more intuitive and provide a stable and well understood system that works for businesses of all sizes and type.”

Notes for editors

  1. Read the full Autumn Statement.

  2. Today’s measure will not apply to unincorporated businesses who will be restricted to the AIA limit.