What was announced?
“Full expensing to be made permanent”
The current full expensing relief was introduced in the 2023 budget and covers expenditures from April 2023 to March 2026. As such, it was a temporary allowance lasting only 3 years, to meet the chancellor’s fiscal rules of the time, but also stimulate investment following the end of super deduction.
During this period a 100% or 50% deduction for relevant capital costs (without monetary limit) could be set off against taxable profits – providing a very generous relief and stimulating continued business investment.
What does this mean?
With the end of the temporary relief in sight, companies with large-scale capital projects faced an unknown tax position and smaller-scale projects would be accelerated prior to the end date, with presumably a potential fall off of investment post April 2026. Larger businesses will need to assess the impact of claiming these allowances on their pillar two compliance obligations.
The changes announced today, making full expensing “permanent”, provide companies with the certainty of tax allowances for proposed capital expenditure beyond April 2026, which will allow for better planning of large-scale capital projects and less of a feast to famine approach for small-scale capital expenditure.
These will be welcome changes for relevant companies but in the world of politics, does permanent really mean forever…? At present there seems to be a consensus across the political spectrum around stimulating investment-led growth so it seems unlikely that they would go back on it.
Also, as part of the announcements, the government will launch a technical consultation on wider changes to the capital allowances legislation, as the introduction of permanent full expensing provides an opportunity to consider simplification of the capital allowances tax system. Without committing to any further changes, there will also be a working group set up to explore whether first year allowances can be extended to leased assets in some circumstances.