Budget 2023: Full expensing on UK capital expenditure to incentivise investment

Incentivising business investment is seen as a priority by the government, as a key driver of economic growth.

The upfront tax deduction will be available for expenditure on new plant and machinery between 1 April 2023 and 31 March 2026. Full expensing – a 100% first year allowance – will be available on most plant and machinery. A 50% first year allowance will be available for certain “long-life” capital assets. There is no cap on the amount of the amount of expenditure that will qualify for relief.

Tax expert Eloise Walker of Pinsent Masons said that the announcements would be welcomed by businesses across the UK.

“Companies were facing the expiry of the ‘super-deduction’ at the end of March, and an increase in corporation tax rates kicking of shortly thereafter, so can only be happy to see a new 100% capital expenditure deduction,” she said.

“There will likely be some residual concern that full-expensing is only set to last three years. But businesses will likely be hopeful that by April 2026 the government will be better placed to either extend the tax relief permanently or at least introduce an alternative that is significantly more generous than the current capital allowance regime. The former must be viewed as doubtful, notwithstanding the chancellor’s vaguely stated intention to make full capital expensing a permanent measure ‘as soon as we can responsibly do so’, but you never know what fruit the magic money tree might bear, so we shall see.”

Tax relief on capital expenditure is currently provided in the form of capital allowances. Writing-down allowances (WDAs) are available on certain expenditure on plant and machinery. The main WDA is 18%, whilst investments in “special rate” assets normally only qualify for allowances at 6%. Special rate assets include long life assets and integral features in buildings such as lifts and air conditioning.

A permanent extension of the £1 million annual investment allowance AIA was also announced by the chancellor. The AIA was due to reduce to £200,000 from 31 March.

The chancellor also announced the creation of 12 new investment zones across the UK with access to “interventions of £80 million over 5 years”. Special tax sites within the investment zones will benefit from a package of enhanced tax reliefs including stamp duty land tax (SDLT) relief, enhanced 100% capital allowances for plant and machinery, enhanced structures and buildings allowances of 10% for 10 years on non-residential buildings and relief from employers’ National Insurance contributions.

“Whilst the investment zones will be welcome as another regeneration measure, they appear to offer similar benefits to freeports, so can hardly be viewed as a new idea. However, the differences in how and where the zones are established may mean they have more of an impact this time round – only time will tell,” said Walker.