Use new corporation tax relief to fund new equipment and machinery

The full expensing scheme will last from 1 April 2023 until 31 March 2026, although The Government has said that it wants to make it permanent “as soon as it can responsibly do so.”

WHAT IS FULL EXPENSING?

Under full expensing, companies can claim 100% first-year relief on qualifying new main-rate plant and machinery investments.

This means every single pound a company invests in new equipment, plant or machinery can be deducted in full and immediately from taxable profits.

HOW DOES FULL EXPENSING WORK?

Full expensing is only available under very specific circumstances.

• It is only available to companies subject to corporation tax. Sole traders and partnerships are excluded, although they are still eligible for the 100% annual investment allowance — which is capped at £1 million per year.
• Full expensing only applies to certain plant and machinery items, which refers to most capital assets — other than land, structures and buildings — used for business purposes (see below for examples).

• Plant and machinery must be new and unused to qualify for the policy. It also cannot be a car, given to the company as a gift, or purchased to lease to someone else.

• Expenditure must be within the ‘main rate pool’ of plant and machinery.

A list of items that may qualify for full expensing includes:

• 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 property.

HOW DOES FULL EXPENSING BENEFIT MANUFACTURERS?

Full expensing allows businesses to deduct the full cost of qualified capital investments, such as machinery and equipment, in the year they are made, rather than depreciating them over several years. This policy has several advantages for machinery manufacturers:

• Accelerated Deductions: Full expensing allows machinery manufacturers to deduct the entire cost of their investments immediately, providing a significant cash flow advantage. Instead of spreading out deductions over several years, they can immediately offset their taxable income, reducing their tax liability and keeping more money in their pockets. This accelerated deduction can help manufacturers reinvest in their business, upgrade equipment, and fund research and development.

• Encourages Investment: Full expensing serves as a powerful incentive for machinery manufacturers to invest in new equipment and expand their production capacity. By allowing them to deduct the entire cost of capital investments, it lowers the after-tax cost of such investments. This encourages manufacturers to modernize their machinery, adopt advanced technologies, and improve productivity, leading to increased output and competitiveness.

• Stimulates Economic Growth: The availability of full expensing can have positive ripple effects on the economy. Increased investment by machinery manufacturers not only benefits their businesses but also stimulates demand for raw materials, components, and services throughout the supply chain. This, in turn, can create jobs, drive innovation, and boost overall economic growth.

• Simplifies Tax Planning: Full expensing simplifies tax planning for manufacturers. With a clear and straightforward tax policy, businesses can more easily calculate and predict their tax liabilities. This simplification reduces administrative burden and allows manufacturers to focus more on their core operations and strategic decision-making.

• Level Playing Field: Full expensing helps create a level playing field for manufacturers by eliminating the bias towards leasing or renting equipment instead of purchasing it outright. Prior to full expensing, businesses had to navigate complex depreciation schedules, which made leasing more attractive from a tax perspective. By allowing immediate expensing, businesses can make investment decisions based on economic considerations rather than tax implications.

• Technology Adoption: The ability to fully expense investments in machinery and equipment can incentivize manufacturers to embrace advanced technologies and automation. With the cost of upgrading or replacing outdated equipment significantly reduced, businesses are more likely to invest in state-of-the-art machinery, enhancing their productivity, efficiency, and competitiveness in the global market.

Next steps

Further details about Full Expensing can be found on the gov.uk website and your accountant will be able to advise you further regarding how to apply the relief.

If you’d like a quotation for the removal, transport or installation of heavy machinery please get in touch.