The Spring budget of 2023 introduced the concept of “full expensing”. This is really a new "first year allowance” (FYA) and will apply from Apr 2023 to Mar 2026. It allows companies (it only applies to companies) to expense qualifying expenditure on plant and machinery on the following:
1) 100% of main pool and,
2) 50% of special pool.
The current “annual investment allowance” (AIA) will continue and be fixed at £1m. Therefore, in theory both the AIA and the new FYA are available and the company can choose which to apply. Therefore the new FYA will only really be relevant to large companies with spends in excess of £1M.
To qualify for the new FYA, the P&M must:
1) Be new and unused,
2) Not be a car,
3) Not be gifted to the company,
4) Must not be for lease to another.
Although the qualifying expenditure is technically pooled, it will behave as if it was not when it comes to a disposal i.e. where the item is disposed of then this will give rise to an immediate balancing charge on 100% of the disposal value in the case of a 100% FYA claim and 50% of the disposal value in the case of a 50% FYA claim (the other 50% being deducted from the normal pool). Therefore it will be important for such items to be tracked so that this can be correctly accounted for.
The expenditure must also not be excluded by virtue of disqualifying arrangements or by the general exclusions which apply to normal first-year allowances. The general exclusions include:
1) Expenditure incurred in the period when the trade ceases,
2) Cars (including electric cars),
3) Long-life assets,
4) Lessors,
5) Certain expenditure connected with a change in the nature or conduct of the trade,
6) Plant and machinery bought initially for a non-qualifying activity,
7) Certain P&M used for one property letting business and then used for another,
Note that there is an exemption from the general exclusions (so FYA would be available) where the plant or machinery is provided for leasing under an excluded lease of background plant or machinery for a building.
Main pool expenditure is broadly all qualifying P&M expenditure that is not:
1) Special pool expenditure,
2) Single pool expenditure e.g. short life asset or part business use asset.
Special rate pool expenditure is broadly:
1) Parts of a building considered integral i.e. known as “integral features”,
2) Items with a long life,
3) Solar panels,
4) Thermal insulation you’ve added to a building,
5) Cars with CO2 emissions over a certain threshold,
There are also anti-avoidance provisions which would apply if the arrangement was entered into and the main purpose is the reduction of a balancing charge on disposal of these assets or its avoidance.
Declaimer: The above is intended to only be brief and broad overview of the topic and is in no way intended to be taken as advice. If you feel that you may be affected by this topic then we strongly recommend that you obtain the appropriate independent professional advice.
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