The recent Autumn Statement from the Chancellor of the Exchequer brings welcome news to limited companies that need to purchase plant and machinery to run their business. Gavin Hollywell from GCSD Accounting has put together a full explanation of how this works for us, and what this might mean for your tax expenses.

The ‘full expensing’ rules for capital allowances, previously only applicable up until 31 March 2026, will now become a permanent fixture in the tax reliefs available to limited companies. With the increase in corporation tax rates, from 19% to potentially 25% now starting to take its toll on businesses, investing in tax efficient assets for your business is more important than ever!

What is full expensing?

The capital allowance regime allows businesses to write off the cost of certain capital expenditure against their taxable profits, thus reducing their overall tax bills. To encourage investment, from 1 April 2023, the government introduced two key extensions to the tax relief available for ‘plant and machinery’ bought for companies. Plant and Machinery can include equipment, lorries, vans, computers, and certain fixtures such as kitchen and bathroom fittings, data cabling and alarm systems – unfortunately, it does not apply to cars.

• The Annual Investment Allowance extension. This means that you can claim 100% tax relief on the purchase of second hand and new, plant and machinery, up to £1 million per annum. If you operate through a number of companies, this limit is shared across them all.
• Extension to full expensing. This gives an uncapped (i.e. there is no ceiling) amount of tax relief on plant and machinery expenditure, so long as it is brand new and unused – it cannot be second hand or used.

For example, £400,000 spent on qualifying items would give £100,000 off a corporation tax bill for a company paying tax at 25%.

Assets that are bought to be leased or hired out are excluded from qualifying for full expensing. However, a working group is in discussions with the government to review this.

For companies that operate large fleets of vans, or large plant, this represents a fantastic opportunity and will play a significant factor in investment decisions moving forward. The method of finance is also key to securing the upfront tax relief above, as well forming part of that investment decision making process.

Finance options are critical – why?

There are a number of ways you can finance the purchase of plant and machinery. To be able to take advantage of full expensing or the Annual Investment Allowance, it is critical you have ownership of the asset from when it is delivered to you, or at the end of any finance period. This means if you buy an asset for cash, on hire purchase or with a bank loan, this will ensure it qualifies. If you use a finance lease, contract hire or any operating lease then it will not – you do still get tax relief but over a much greater period of time.

When acquiring new plant and machinery there are a number of other tax and accounting implications that should be considered, and it is always advised that you speak to your accountant or tax advisor before making any significant investment decision. Similarly, if finance is required, a finance broker should be able to help you navigate your financing options and it is again recommended you seek advice.