Briefing

Full expensing – introduction

Full expensing was introduced by Finance (No.2) Act 2023 and made permanent by Finance Act 2024, becoming an instant and welcome cornerstone of the
UK capital allowances system.

Subject to various conditions, full expensing enables companies to claim tax relief on 100% of the qualifying plant and machinery expenditure, in the year of expenditure.

Qualifying plant and machinery includes security systems, fire fighting systems, audio-visual installations, computers, data cabling, furniture, carpets, retail display units and counters, toilet fittings and manufacturing equipment.

Operating in tandem with full expensing is the 50% first-year allowance. Subject to various conditions, 50% of expenditure incurred by companies on solar panels and integral features such as lighting, electrical systems and air conditioning can be claimed as tax relief, in the year of expenditure.

Full expensing – key conditions

In order to be entitled to claim full expensing or the 50% first-year allowance on plant or machinery, various conditions must be met, including:

The plant or machinery must be used as a fixed asset in the business,
The plant or machinery must be acquired new and unused,
Available only to companies chargeable to UK Corporation Tax,
Must be claimed in the period of expenditure, and
The plant or machinery must not be acquired for leasing, unless it is an excluded lease of background plant or machinery.

However, in addition to the above, there are many other circumstances to consider…

Full expensing – specific circumstances

Many other circumstances directly affect whether or not there is entitlement to claim full expensing or the 50% first-year allowance on plant or machinery. Many of those circumstances also determine the actual amount/value of the full expensing and the 50% first-year allowance.

Upfront awareness, holistic consideration and careful management of all such circumstances are necessary because their effect is not always apparent until it is too late.

The specific circumstances affecting entitlement and amount/value can include any of, or any combination of, the following:

Is the plant and machinery expenditure in a financial period, less or more than £1 million?
The financial period is more or less than 12 months
Is the company part of a group or under common control?
The date of expenditure
Interaction of the AIA, full expensing, 50% first-year allowance and writing-down allowances
Where the expenditure is on a car
The plant or machinery is acquired as a gift
When transferring a property to a connected person
Appropriating a property from trading stock to fixed asset
Purchasing a newly constructed property from a developer
Purchasing a newly constructed property that is partially let

Even more circumstances…

When a capital construction project straddles multiple years
Where the plant or machinery expenditure is partly met by a capital contribution or a grant
When the expenditure is incurred by a mixed partnership
Is the plant or machinery acquired for leasing or for hiring with an operator?
When the plant or machinery is acquired on hire-purchase
Subsequent sale of the plant or machinery – balancing charges
Section 198 elections when selling a commercial property – endeavour to reduce the balancing charge
Property investors – long-funding leases and loose furniture

This briefing is for general information purposes. It is not advice and is not intended to be advice.