The new capital allowance regime began in April 2023, with the advent of full expensing: an immediate 100% deduction for expenditure on qualifying plant and machinery by companies, with no monetary limit. This is a significant shift in the way businesses can claim tax relief on their capital expenditure. It seems almost too good to be true. However, not all expenditures qualify for full expensing, and understanding these exclusions is crucial for effective financial planning.
In a recent webinar Full Expensing: What’s the Catch? Carl Bayley laid out what expenditure qualifies for full expensing and what doesn’t.
Full expensing is similar to the super deduction, with many of the same exclusions. These exclusions are items that were initially part of the super deduction but do not apply to full expensing. For instance, certain timing-related items and the oil and gas industry, which already receives 100% relief, are not included in the full expensing legislation.
Three major exclusions remain consistent: cars, second-hand assets, and assets held for leasing. Cars are often excluded from various tax reliefs, and this is no different in the case of full expensing. Second-hand assets and assets held for leasing are also typically excluded from such benefits.
However, there are exceptions within these exclusions. For example, in the case of leasing, if a company is a corporate landlord with commercial rental property, fixtures affixed to the property, such as bathroom fittings, would qualify for full expensing. But movable assets like furniture within a rented property would not qualify because they fall under 'assets held for leasing'.
Similarly, a company that leases out equipment, like garden equipment, wouldn't be able to claim full expensing for those assets. Other less common exclusions include ships, railway assets, gifted assets, or transfers from a connected person. These exclusions particularly affect business incorporations where assets are transferred at existing tax written down value.
Another important exclusion is anything falling into the special rate pool. This includes integral features, thermal insulation of existing property, and long-life assets. Most cars also fall into this category and hence, do not qualify for full expensing.
In conclusion, while the new capital allowance regime's full expensing provision offers significant tax relief opportunities, it's essential to understand what qualifies and what doesn't. This knowledge will enable businesses to make informed decisions about their capital expenditure and optimise their tax planning strategies.
To watch the full session, click here. In the session, Carl Bayley covers the above as well as the following topics:
- What expenditure qualifies for full expensing, and what doesn’t?
- What other capital allowances are available?
- The treatment of disposals and potential tax cost arising
- Choosing the best capital allowances for the company to claim
- When not to claim allowances
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.