With the super deduction coming to an end on the 31st March 2023, The chancellor introduced Full Expensing as a replacement during the recent spring budget.
From April 2023 until the end of March 2026, Limited companies in the U.K. can claim 100% capital allowances on qualifying plant and machinery investments, which includes background plant in commercial property.
As a result of measures announced at the spring Budget, businesses will now benefit from:
Full expensing – which offers 100% first-year relief to companies on qualifying new main rate plant and machinery investments from 1 April 2023 until 31 March 2026.
The 50% first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets until 31 March 2026
The Annual Investment Allowance (AIA) providing 100% first-year relief for plant and machinery investments up to £1 million, which is available for all businesses including unincorporated businesses and most partnerships.
Under full expensing, companies are able to deduct the full cost of investment in new main rate plant and machinery from their taxable profits, instead of having to write down the expenditure over a number of years. This will allow companies to reduce their tax liability in the short term and retain more capital for future investments.
Typical main rate items within a commercial property fitout/refurbishment include fire and security systems, data installations, bathroom suites, floor coverings, ironmongery and much more.
For special rate expenditure, which does not qualify for full expensing, a 50% first-year allowance can be claimed with the remaining 50% being written down at 6% per year until the pool is exhausted.
Typical special rate items within a commercial property fitout/refurbishment include, electrical and lighting installations, air cooling and heating systems, ventilation installations, lifts and more.
These measures are a step in the right direction for U.K. businesses and are a welcomed addition in light of the temporary super deduction being withdrawn from the 31st March 2023.
Full expensing, combined with the planned increase in corporation tax, mean capital allowances are more valuable than ever, and businesses embarking on small fit out works to major refurbishment projects need to ensure they are maximising tax savings from their qualifying investments.
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