What is Full Expensing?

The continuing strain for households and businesses facing soaring prices was a major factor as Chancellor Jeremy Hunt delivered his first Budget speech in March, and policies directed at getting people into work, and keeping them there, were central to the Budget.

 Whilst this was all positive news in terms of a commitment to the workforce and key changes on childcare and pensions, regardless of individual thoughts and feelings on how effective or relevant these were, it’s clear that Mr Hunt, like everyone else, still has an eye on energy costs, hence the news to extend the Energy Price Guarantee until July 2023.

However, what was maybe not clearly outlined in the Budget was the end of Super Deduction. In 2021 Super Deduction was introduced which allowed a company to deduct 130% of a purchased asset value in the first year. This ended on 31st March 2023, and the replacement for this scheme is Full Expensing. This scheme is initially set for three years with the “intention” to make it permanent in the long-term. 

Full Expensing works in a similar way to Super Deduction. 100% of plant and machinery value can be deducted from taxable profits in the year it is incurred. Although this represents a 30% decrease, the value of tax savings offsets this as the corporation tax rate has increased from 19% to 25%. What this essentially means is that for every £1 invested in qualifying expenditure businesses will be able to save up to 25p on their tax bill. There is no limit on the amount of expenditure that can qualify for full expensing, but all assets must be unused and not second hand. The company must also be incorporated i.e. registered for corporation tax.

In addition to this the government is also offering an Annual Investment Allowance (AIA) which also allows 100% relief in the first 12 months after purchase. Unlike Full Expensing this is limited to a maximum of £1m but is allowed for 2nd hand machinery and can be taken up by unincorporated companies as well as incorporated. In short, whilst limited support (if anything at all) is available to companies regarding energy bills, there is at least some positive news in that investment in new, more energy efficient technology, has beenmade a little more affordable to some businesses via these schemes. While these measures will not increase a company’s profitability alone, as they simply reduce the tax burden and the subsequent impact on cash and equity, a possible spin-off benefit is that profitability should be increased.

 The average moulding facility has a 30-35% spend on energy costs, and anything which is done in this area will have a direct impact on the bottom line. As with all budgets and announcements, there will be mixed and often polar opposite views on what’s there (or not there), so please don’t shoot the messenger – I'm neither a politician or an accountant, but my hope is that at least some good will come out of this for someone.