The Super-deduction scheme, which allowed UK businesses to deduct 130% of the cost of qualifying capital expenditures against their taxable profits, was introduced in the Spring Budget 2021 as a temporary measure to boost economic recovery post-pandemic. However, it was always intended to be a short-term incentive and is now coming to an expected end on 31 March 2023. Here’s what UK businesses need to know.
The Super-Deduction Replacement: Full Expensing and 50% First-Year Allowance
The good news is that the UK government has introduced two new capital allowances schemes in the recent Spring Budget 2023 to replace the expiring Super-deduction scheme. These are Full Expensing (FE) and the 50% first-year allowance (FYA).
Full Expensing (FE)
Full Expensing allows UK companies to claim 100% of the cost of qualifying main/general pool expenditure from their profits. This new scheme is similar to the Annual Investment Allowance but with no upper limit. The FE allowance is only eligible to companies and is claimable in respect of expenditure qualifying as main/special rate pool only.
50% First-Year Allowance (FYA)
The 50% FYA is an existing capital allowance that has been extended for another three years until 31 March 2026. It is available to companies only and allows them to deduct 50% of the cost from their profits before tax in the year of purchase.
The Benefits of Full Expensing and 50% FYA
Both Full Expensing and 50% FYA offer significant benefits to UK businesses. These new schemes will provide an effective £9 billion a year corporation tax cut and ensure that the UK’s capital allowances regime remains the joint most competitive in the G7 and OECD.
While the Super-deduction scheme may be coming to an end, the introduction of Full Expensing and the extension of the 50% FYA will provide companies with the tax relief they need to continue investing in their business. This will help to support economic growth and recovery, particularly as the UK looks to bounce back from the COVID-19 pandemic.
The Future of Full Expensing and 50% FYA
Initially, Full Expensing is set to be in effect for three years, ending on 31 March 2026. However, there is an intention to make this a permanent allowance in the future. Similarly, there is an intention to make the 50% FYA permanent before it expires on 31 March 2026.
The Annual Investment Allowance (AIA) of £1,000,000 still exists and may be sufficient for many small businesses to claim 100% tax relief on qualifying asset purchases. However, larger businesses may find the Full Expensing and 50% FYA schemes more beneficial.
While the end of the Super-deduction scheme may be concerning for UK businesses, the introduction of Full Expensing and the extension of the 50% FYA offer significant tax relief and support for companies. These new schemes will help to boost economic recovery and growth in the post-pandemic era. With the intention to make these schemes permanent, businesses can continue to invest in their growth with confidence.
Get in touch
If you need help navigating these changes to the UK’s capital allowances regime, get in touch with AIT Accountants today. Our team of experts can provide guidance and support to ensure your business is making the most of available tax relief options.