Spring Budget 2023 changes to capital allowances

Super-deduction is coming to an end on 31 March 2023. In the Spring Budget 2023, the Chancellor announced a policy package that goes further. It ensures the UK’s capital allowances regime continues to be the joint most competitive in the G7 and OECD.

The Spring Budget 2023 confirmed two major capital allowances, together worth £27 billion over the next three years. An effective £9 billion a year corporation tax cut for UK businesses.

Full Expensing (FE)

• This replaces super-deduction, which ends on 31 March 2023, and comes into effect for three years from 1 April 2023. It is only eligible to companies and allows taxpayers to claim 100% of the cost of qualifying main/general pool expenditure from their profits.
• Along similar lines to Annual Investment Allowance (but with no upper limit), it allows companies to deduct the 100% cost against profits in the tax return for the financial period of expenditure.
• It is claimable in respect of expenditure qualifying as main/special rate pool only, examples of which are vans, lorries, laptops, IT equipment, sanitaryware, and office furniture such as desks and chairs.
• If a company is paying the new tax rate of 25% this will result in a saving of 25p for every £1 spent (or 19p for every £1 spent for companies with profits under £50,000).
• Initially for the three years ending 31 March 2026, there is an intention to make this a permanent allowance.

The 50% first-year allowance (FYA)

• Again, available to companies only, this allowance is in respect of qualifying expenditures classed as special rate assets, examples of which are expenditures on lighting, plumbing, heating, and solar panels. Taxpayers can deduct 50% of the cost from their profits before tax in the year of purchase.
• The allowance was initially introduced on 1 April 2021 and, like super-deduction, was due to end on 31 March 2023. The allowance has now been extended for another three years to 31 March 2026.
• After the 50% deduction in the first year, the remaining 50% balance will then be written down as writing down allowances at the current annual rate of 6%.
• As with the new Full Expensing (FE) allowance, there is an intention to make this allowance permanent before it expires on 31 March 2026.

It is worth noting that the Annual Investment Allowance (AIA) of £1,000,000 still exists. For many small businesses that allowance will be enough to satisfy claiming 100% tax relief on qualifying asset purchases.