A brief introduction

Full expensing (main/general pool items only)

Full expensing (FE), is a tax incentive that allows businesses to write off the full cost of qualifying assets in the year of purchase.

As opposed to claiming the value over several years. This means that companies can deduct the entire cost of eligible assets from their taxable income in the year that they purchase them. In turn, providing a significant tax break and improving cash flow.

Full expensing is designed to encourage business investment and stimulate economic growth. So, it can be a valuable tool for companies looking to upgrade their equipment and technology. Meaning businesses can improve their operations and stay competitive in their respective industries.

Learn more about full expensing.

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50% first year allowance (special rate pool items only)

50% first year allowance is a tax incentive that provides businesses with tax relief on their investments. For new plant and machinery that is classed as a special rate pool.

Under this scheme, companies can claim a tax deduction of 50% of the cost of qualifying assets in the first year of ownership. This provides a significant tax break for companies investing in new equipment and technology. Therefore, helping them to improve their operations and stay competitive in their respective industries. The 50% first year allowance scheme is designed to stimulate business investment and encourage economic growth. So, it can be a valuable tool for companies looking to expand or upgrade their facilities.

Learn more about the 50% first year allowance.

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How can these be applied?

Example 1

Property Acquisition

A company purchases a second-hand property i.e. not a new build.

Full expensing and first year allowance typically apply to new assets purchased for use in a business. This could include equipment or machinery. Second-hand items of plant and machinery are not eligible for full expensing or first year allowance.

Instead, the cost of second-hand items in the property which qualify for capital allowances would be eligible for annual investment allowance (AIA). Alternatively, the current annual rates of 18% for main/general pool items, and 6% for special rate pool items.


Example 2

A Newly Constructed Property (costing £10m)

A company is constructing a new manufacturing facility to expand its operations.

Of the £10m build cost, £5m has been spent on new plant and equipment. This compromises of £3m in respect of qualifying main/general pool plant and machinery. Then, £2m on qualifying special rate pool expenditure.

In this case, the business can benefit by claiming the full £3m expenditure under full expensing. The further £1m of the special rate pool expenditure (£2m x 50%) as first year allowances.

For simplicity, in this example, no annual investment allowance (AIA) was available.

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Example 3

Newly Constructed “Shell & Core” Building (costing £2m)

A landlord (Ltd Company) is constructing a building costing £2m.

It’s important to note that this is purely a shell & core construction where all the fit-out costs are to be carried out by a tenant once the construction of the building is complete.

None of the build costs will qualify for full expensing or 50% first year allowance as the tenant could benefit from these tax breaks under leasehold improvements.

It should be noted that the build costs may qualify for other allowances. For example, structures and buildings allowance (SBA) or land remediation relief (LRR).

Commercial property being built

Example 4

Property Renovations/Improvements (costing £2.5m)

ABC Ltd is planning to replace the heating & lighting systems.

These improvements will take place within their office building in London with work expected to cost £2,500,000.

As the company spends £2,500,000 on integral features only, full expensing doesn’t apply. However, the business can claim £1,000,000 of the cost as annual investment allowance (AIA). The other £1,500,000 is available for first year allowance at 50%, giving total claimable allowances of £1,750,000, (£1m plus £1.5m x 50%).

If you would like support in these areas, please get in touch with our expert team

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