Capital allowance claims: Spring Budget 2024
Over the past few years, we have seen changes to capital allowances, designed to support businesses in a changing environment. The latest Spring Budget saw policies put in place in the Autumn Budget extended and made permanent.
What are the changes to capital allowances?
From 1 April 2021 until 31 March 2023, two new reliefs were available to companies that qualified with expenditure on plant and machinery assets:
- A 130% super-deduction capital allowance qualifying plant and machinery
- A 50% first-year allowance (FYA) for special rate assets
Companies were able to save up to 25p of tax for every £1 invested. Now, the super-deduction has been replaced with Full Expensing. Full Expensing has been in place since April 2023, and will continue until at least 31 March 2026.
For qualifying expenditure on plant and machinery incurred on or after 1 April 2023 but before 1 April 2026, companies can claim:
- A 100% first-year allowance for main rate expenditure
- A 50% first-year allowance for special rate expenditure
In the Spring 2024 Budget, the Chancellor announced plans to extend Full Expensing to cover assets for leasing. Draft legislation is thought to be published shortly and will be put in place when fiscal conditions allow.
What are the benefits of Full Expensing?
Full Expensing can be of great benefit to businesses. Unlike the annual investment allowance, which has a limit of £1m, Full Expensing has no limit for qualified assets. Full Expensing can help to free up funds and improve cash flow, meaning businesses can make other investments or expenses to support the business.
Full Expensing can help with business growth, as it encourages the investment in capital assets. This can help to improve productivity across the business, as well as create more jobs and boost the economy.
What is plant and machinery?
Despite the industrial term, plant and machinery generally refers to the equipment used for carrying on a business (‘tools of the trade’). While it can include machines, it can also extend to any number of office items such as fire alarms, security systems, carpets, computers and refrigeration.
What can be claimed?
In general, you can claim Full Expensing when you buy qualifying assets. The items must be new or unused.
You can claim full expenses on:
- Office chairs and desks
- Computer equipment and servers, for example, laptops and equipment which enable staff to work remotely
- The creation of flexible workspaces and areas within the office. This facilitates collaboration and may create opportunities to claim additional allowances
For businesses moving to increase or decrease office space:
- Blinds, curtains and carpets
- Microwaves, coffee machines, fridges, freezers and utensils and cutlery racks. All of these items qualify for capital allowances
You can also claim capital allowances on items aside from plant and machinery, namely:
- Integral features
- Renovating business premises in disadvantaged areas of the UK
- Extracting minerals
- Research and development
- Intellectual property about industrial techniques
- Patent rights
- Dredging allowances
- Structures and buildings
What can’t be claimed?
Things that are not business assets can be claimed for in a different way. This will include your business’s day-to-day running costs, items that you buy or sell as part of your trading, and interest payments incurred for buying assets.
If you’re a sole trader or partnership, you can claim these as business expenses. If you’re a limited company, these costs will need to be deducted from your profits.
In some instances, such as if you’re looking to buy used or second-hand equipment, you may benefit from the Annual Investment Allowance (AIA) or Writing Down Allowance instead. The AIA continues to be available alongside the new measures and remains at £1m. A business can make a Full Expensing claim and an AIA claim, as long as they do not make both claims on the same asset. For assets that qualify for multiple capital allowances, you can choose which one to use.
When are capital allowances suitable to use?
Full Expensing is only available to companies, and not to individuals or partnerships. As stated before, the expenditure must be new to qualify for the allowance.
It also makes sense to use if the investment is to be held at least until 1 April 2026.
How we can help your business
Separate and detailed records must be kept of the qualifying assets in order to make a claim. Our friendly and knowledgeable tax team can help you determine what is eligible, and help you make your claims, guiding you through the process to make it as simple as possible. Our tax team can also advise on the most tax advantageous allowance to claim for each asset.
For further advice on making the most of Full Expenses and capital allowances claims, please get in touch with a member of our tax team or call 01903 234094.
