Capital Allowance and Full Expensing – Understanding the Essentials

Author: Rob Mills, BPF

The British Plastics Federation (BPF) recently held a successful webinar on the topic of Full Expensing of Capital Allowances. Presented by Nathan Williams, tax partner at international law firm Trowers and Hamlins LLP, the webinar gave participants the opportunity to get acquainted in detail with the recently announced changes to capital allowances.

The webinar was held following the government’s Spring Budget in which it was announced that two new first-year capital allowance tax reliefs (FYAs) would be introduced for companies incurring capital expenditure on certain plant assets and machinery (P&M) on or after 1 April 2023.

The move is primarily intended to encourage companies to invest in new plant and machinery for use in the business and it follows the ‘super deduction’ (a FYA at 130%) announced in 2021, which has now ceased.

During the webinar, Nathan set out the fundamental differences between the tax treatment of capital expenditure versus the tax treatment of trading/revenue expenditure and that capital allowances effectively provide a tax deduction for certain CAPEX against taxable profit akin to depreciation. 

Nathan explained that these most recent changes allow for 100% corporation tax deduction for expenditure incurred on P&M falling within the main rate pool – known as ‘full expensing’ (i.e. a 100% FYA), as well as a 50% FYA for expenditure falling within the special rate pool.

The webinar provided an overview of the types of P&M investments that qualify for plant and machinery capital allowances, including machines, vehicles and certain systems incorporated into buildings (but not the building or land itself) as well as typical types of assets that fell within the main rate pool and the special rate pool.

During the webinar, it was highlighted that these new rules only apply to expenditure incurred on new (not second hand) qualifying P&M assets and that they are to apply (at least initially) for a 3-year period to 31 March 2026.

The availability of full expensing and its impact on corporation tax liabilities was reiterated, including how these new rules can reduce the overall tax liability for a business and provide a cash flow advantage.

Under full expensing, for every £1 that a company invests in qualifying P&M assets, its corporation tax can be reduced by up to 25p as the expense can be deducted from that year’s profits.

Buyers of new processing machines, such as injection moulding machines, could typically expect to claim 100% FYA based on the cost of the machine itself. The further cost of adding or upgrading new systems to accommodate such machinery or the wider business premises i.e. any 'plant' element added to the factory premises – might also qualify for 100% or 50% FYA depending upon circumstances.

Members of the British Plastics Federation can view a recording of the within the BPF’s webinar archive - view the recording here (members only).

The UK government’s guide to full expensing is also available online.