Super-Deduction Replaced by Full-Expensing

After the cessation of the “Super-deduction” capital allowance earlier this year, companies will have access to a new First Year Allowance, referred to as Full Expensing, that allows them to claim a 100% deduction for tax purposes in the year of spend on specific capital investments.

This relief is temporary and will end on 31 March 2026 but for companies that take advantage of it will enable up to £250 of each £1,000 of capital spend to be recovered against their tax bill and so potentially significant tax savings are available.

What is Full Expensing?

Companies (particularly those with significant spend) can accelerate claiming tax relief on qualifying expenditure in the year assets are acquired, rather than having to spread the relief over multiple years. This relief will enable companies to obtain a taxable deduction on qualifying expenditure in the year of acquisition rather than it being relieved over several years.

Eligible businesses will benefit from a 100% first year capital allowance for qualifying plant and machinery, and a 50% first year allowance for qualifying special rate / integral feature assets without any cap or limit being applied.

Who Will be Eligible to Claim the Allowance?

With the main rate of corporation tax now at 25%, companies will need to ensure they are maximising tax reliefs available to reduce the impact of this increase in rate. Full Expensing will be particularly useful to groups or companies looking to invest in new and unused:

Plant & machineryUpgrading of computer software systems
Undertaking an office fit-outRenovating commercial property (e.g. hotel, care homes, factory / warehouse)

What Expenditure Qualifies for Full Expensing?

Based on the preliminary information and draft legislation, Full Expensing will share many similarities with the super-deduction. However, it is important to note that Full Expensing will only apply to brand new, unused assets that have not been previously owned, and will be limited to certain qualifying assets. These assets must be acquired before 31 March 2026 and will include assets such as:

100% Relief – Full Expensing50% Relief – Special Rate
Plant & MachineryAir Conditioning & Heating Systems
Fixtures & FittingsLighting 
ComputersElectrical systems

The above is just an example of several assets that will typically qualify for relief, however as with the super-deduction, there will be certain exclusions such as expenditure on cars or where assets are purchased with the intention of leasing.

Pitfalls and Other Limitations

Groups that operate via a “PlantCo” or “OpCo” structure, where an asset protection company leases or hires its assets (such as machinery and plant) to the operating company, will still be subject to leasing restrictions. While this structure is often used in the construction industry, it is not exclusive to that sector and is also prevalent in other industries.

Although the restriction may not affect all groups, we would advise that you evaluate your tax planning options when considering significant investment to take into account the tax implications and any planning opportunities.

With careful planning, there may be opportunities to structure such investments in a manner that enables a group to claim Full Expensing or the Annual Investment Allowance on the acquisitions whilst continuing to protect the value of its investments. As always, the commercial intention of the business should take precedent over tax planning.

Relief on the expenditure will be clawed back to the extent of any proceeds received should the asset(s) be disposed.

If you are expecting to incur expenditure on plant and machinery or are carrying out any refurbishment/fit out works, please complete the below form so that we can help you maximise your claim:

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