Full Expensing Capital Allowance Tax Scheme

In the wake of the removal of the super deduction allowance which ended back in April 2023, full expensing (Also referred to as ‘full business expensing’ or ‘immediate expensing) has arisen from the ashes.

What is full expensing?

Full expensing is a capital allowance tax scheme that permits businesses to deduct the entire cost of capital equipment from their taxable profits in the year the equipment is purchased. The relief is uncapped, making it attractive to companies and groups whose qualifying expenditure exceeds the AIA limits.  While only giving 100% allowance on main pool expenditure rather than the 130% of the super deduction, It is still a valuable allowance allowing companies to deduct the cost of qualifying capital investments.

Who can claim full expensing

Full expensing can be claimed by businesses that purchase qualifying capital equipment. This includes companies of all sizes, from small enterprises to large corporations, provided they are subject to UK corporation tax. The equipment must be used for business purposes, and the claim must be made in the same year the equipment is purchased.

It is important to note that the emphasis on full expensing as was the case with the super deduction is on acquiring new and unused qualifying plant and machinery (with some small exceptions including delivery miles and specific pre-purchase testing).

Qualifying expenditure includes new plant and machinery, and other qualifying items such as furnishings, manufacturing equipment, IT equipment and capital investment on software (provided the relevant elections are made).

Full expensing also allows a 50% first year allowance for assets that would otherwise qualify for the special rate pool, such as electrical systems, lighting systems and long life assets.

Full expensing vs Annual Investment Allowances (AIA)

As AIA is still set to continue at its £1m limited, then this provides an important planning opportunity when purchasing high levels of qualifying capital items, companies will need to identify which allowances will be best applied to ensure maximum allowances are obtained.

There will be a clawback on disposals where the full expensing has been claimed, bringing the balancing charge straight into tax in the period of disposal, rather than being offset against the remaining pool balance.

Get in Touch

For further information on full expensing and any other tax matters please contact our tax experts who will be happy to help.