Changes in investment incentives to be aware of

Rachael Tate

Rachael Tate

Tax Senior Manager

The 130% ‘super deduction’ Capital Allowances relief came to an end on 31 March 2023, which could affect the tax relief available on expenditure incurred by companies. There were also changes announced in the Spring Budget, with the introduction of 'full expensing' from 1 April 2023.

The super deduction

The super deduction allows companies, incorporated businesses (not sole traders or partnerships) to cut their corporation tax bill by 25p for every £1 invested in qualifying plant and machinery. To qualify, expenditure must meet the definition of ‘plant and machinery' for capital allowance purposes – this covers new and unused assets and machinery, office equipment, vans, and lorries.

There are complex rules around the timing of capital expenditure and these, together with the transitional rules when the super-deduction ends, could have an impact on the availability of the full super-deduction rate of 130%. Where expenditure is in an accounting period that straddles the end of the qualifying period, ie 1 April 2023, the super-deduction rate will be time apportioned.

For companies with a March accounting year end, the super-deduction will be available in full on qualifying expenditure for the accounting year end to 31 March 2023.

However, where the accounting period ends after 1 April 2023, the available super-deduction will reduce to:

Year endRateSuper deduction available
April 2023335 days @ 130% =128%
May 2023304 days @ 130% =125%
June 2023274 days @ 130% = 123%
July 2023243 days @ 130% =120%
August 2023212 days @ 130% =117%
September 2023182 days @ 130% =115%
October 2023151 days @ 130% =112%
November 2023121 days @ 130% =110%
December 202390 days @ 130% =107%
January 202459 days @ 130% =105%
February 202431 days @ 130% =103%

Introduction of full expensing

One of the key changes announced in the Spring Budget was the introduction of full expensing for qualifying capital expenditure. This measure is effective from 1 April 2023 to 31 March 2026 and provides a 100% deduction for unlimited capital expenditure on main pool plant & machinery. Its introduction coincides with the end of the Super Deduction. 

Full expensing does not apply to expenditure which qualifies at the special rate plant and machinery, which may still benefit from a 100% deduction via the Annual Investment Allowance or the 50% First Year Allowance which was extended for a further three years.     

Whilst full expensing is a welcome move, we would have expected to see more targeted and long-term Capital Allowances commitments being introduced, for both energy and water efficient technologies. This would have gone some way to bring the UK Capital Allowances regime into greater alignment with the carbon reduction targets required to reach Net Zero by 2050. As both the commercial and residential property sectors in the UK Built Environment contribute over 23% of all carbon emissions in the UK, this presents an enormous challenge for the sectors to tackle and reduce their carbon emissions.

Annual Investment Allowance 

The current £1million rate of the Annual Investment Allowance will remain at this level rather than reducing to £200,000 on 1 April 2023 as previously expected. The AIA allows businesses with spend qualifying for plant and machinery capital allowances to claim a 100% tax deduction in the year.

To make use of these valuable allowances and avoid any surprises, we would recommend planning your capital expenditure carefully and consulting with your advisers.

Get in touch

Our specialist Construction & Property Incentives team can help you plan your expenditure to make use of the available allowances and avoid surprises, so please get in touch if you have any queries.

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