Are your clients aware they can save up to 25p in tax for every £1 invested in qualifying plant and machinery including vans?
In the Spring Budget, the Chancellor announced the Full Expensing scheme which is a follow-on from the Super-Deduction and offers significant tax relief for businesses that invest in qualifying plant and machinery, including vans.
Investment is a key driver of productivity growth but business investment has been a long-standing weakness in the UK – UK business investment accounted for 10.0% of GDP compared to the OECD average of 12.5% in 2021.
The government hopes that by offering generous investment incentives, businesses will invest more and create the right conditions for sustained economic growth.
This new policy which is available between April 2023 and March 2026 allows companies to claim a deduction from taxable profits that is equal to 100% of their qualifying expenditure in the year that expenditure is incurred.
Capital allowances are a type of tax relief for businesses that allow them to deduct some or all of the cost of an item from their profits before paying tax.
The main benefit of Full Expensing is that it allows businesses to write off the cost of investment in one go. For every pound a company invests in qualifying plant and machinery, their taxes are cut by up to 25p. This reduces the tax liability of businesses and frees up cash flow that can be used for other purposes, such as reinvestment in the business or paying off debt.
The government introduced the Super-Deduction in 2021, which is the biggest two-year business tax cut in modern British history. The Super-Deduction allowed companies to claim 130% capital allowances on qualifying plant and machinery investments made between April 2021 and March 2023. Full Expensing builds on the success of the Super-Deduction.
Full Expensing is available to companies subject to Corporation Tax only. Therefore, unincorporated businesses cannot claim, but such businesses are entitled to claim the AIA, which offers the same benefits as full expensing for the investments it covers (up to £1 million per year). The plant and machinery must be new and unused, must not be a car, given to the company as a gift, or bought to lease to someone else.
It is important to note that Full Expensing is only available for ‘main rate’ plant and machinery. ‘Main rate’ plant and machinery 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; and some fixtures such as kitchen fittings, bathroom fittings and fire alarm systems in non-residential property.
For ‘special rate’ expenditure, which doesn’t qualify for full expensing, a 50% first-year allowance can be claimed instead, subject to the same conditions that apply for full expensing. This means that a company can claim a deduction from taxable profits that is equal to 50% of their qualifying expenditure in the year that expenditure is incurred.
Special disposal rules
Businesses should be made aware that special disposal rules apply if a company sells an asset on which it has claimed either full expensing or the 50% first-year allowance.
For the disposal of an asset on which a company has claimed full expensing, the company will be required to bring in an immediate balancing charge equal to 100% of the disposal value. This means that if the company sold an asset for £10,000 on which they had claimed full expensing, they would be required to increase their taxable profits by £10,000.
For the disposal of an asset on which a company has claimed the 50% first-year allowance, the company will be required to bring in a balancing charge equal to 50% of the disposal value. The remaining balance of 50% is treated in the normal way so is deducted from the special rate pool balance. This means that if the company sold an asset on which they had claimed the 50% first-year allowance for £10,000, they would be required to increase their taxable profits by £5,000 with the remaining £5,000 being deducted from the pool.
How Harmoto can help
Clients are looking to Harmoto to help them find operational and financial efficiencies and savings. Financing fleet and other assets though purchase contracts is enabling businesses to reduce their tax bills significantly and free up cash flow.
We are helping our clients finance vans, tippers, trucks, excavators, and forklift trucks and other assets this way.
We are able to support their fleets on a day to day basis, taking the hassle out of procurement, financing and maintenance enabling them to focus on their strategic objectives.
Hannah-Louise Kirkpatrick is Founder and Managing Director at Harmoto.
For more information, contact Hannah-Louise: [email protected]
