By far the biggest business tax announcement in this Budget was the introduction of a ‘full expensing’ policy.
Companies incurring qualifying expenditure on the provision of new plant and machinery on or after 1 April 2023 but before 1 April 2026 will be able to claim one of two temporary first year allowances:
- a 100 percent first year allowance for main rate expenditure (‘full expensing’) and
- a 50 percent first year allowance for special rate expenditure.
The move to a ‘full expensing’ policy reflects the outcome of consultations with business and potentially provides a welcome relief (literally) for companies who were facing the double impact of the increase in the headline rate of corporation tax to 25 percent from 1 April 2023, alongside the end of the super-deduction on 31 March 2023.
Using immediate expensing as the mechanism to promote investment should also result in minimal impacts for those companies who will be subject to the UK’s implementation of the Pillar Two minimum tax, which the Government will legislate for in the Spring Finance Bill 2023.
However, the nature of the relief means that the benefit will not be evenly distributed: the real winners here are those companies with significant qualifying capital expenditure in excess of the annual investment allowance. Those operating in sectors involving less plant and machinery spend, or loss making companies, will not have as much to celebrate.
In addition, the temporary nature of the relief means that the benefit being offered is simply one of timing. That is still valuable - and the prospect of more is offered by the Government’s statement that it intends to make this measure permanent when fiscal conditions allow - but this comment also highlights the limited room for manoeuvre the Government currently feels it has.
This difficulty perhaps also explains the absence of any clear strategy setting out the Government’s plans for business tax moving forward, similar to the ‘roadmaps’ previously published in 2010 and 2016. Understandable as that is, certainty matters. Businesses base investment decisions on the long term picture and the struggle to provide clarity on this, highlighted by the approach to the capital allowances changes, presents a challenge for businesses considering investment in the UK.
