Business: How does full expensing work?
On 15th of March, the government announced its annual budget. Among the changes was an announcement that qualifying companies can claim 100% capital allowances on plant and machinery investments, riding on the previous success of the Supertax scheme. You can read the entire breakdown on the official government website. Here, we'll highlight the key points here and highlight how we can help you and our business.
What counts for "plant and machinery?
In general terms, plant and machinery accounts for all tangible capital assets - other than land, structures and buildings - used in the course of a business. This includes:
- Computers and their peripherals, such as printers and monitors
- Office equipment
- vehicles (not cars
- warehouse equipment
- construction equipment
- fixtures including kitchens and bathrooms in non-residential property
As a technology company, we provide computers et al which qualifies as plant and machinery. This includes desktops, laptops, monitors, printers. we also provide both B2C and B2B services, including the procurement and installation of IT equipment.
What does Capital Allowances mean?
Capital allowance allows a business to deduct some or all of the cost of an item from their profits before paying tax. This is to promote investment as it is currently erring on the lower side in the UK. According to the budget: "UK business investment accounted for 10.0% of GDP compared to the OECD average of 12.5% in 2021." In the new budget, the government has outlined several tiers of capital allowance, the maximum including claiming 100% of the cost of plant and machinery (up to £1m) in the year it is incurred. Other types can be found in full on the official government budget release.
What is full expensing?
Full expensing, as described by the official Spring Budget publication, is "a 100% first-year allowance which allows companies to claim a deduction from taxable profits that is equal to 100% of their qualifying expenditure in the year that expenditure is incurred." There are certain caveats and criteria to meet in order to qualify, so it's worth checking if you and your business are eligible to claim.
So what does this mean for your business?
It means you could be eligible to claim 100% of your deduction so long as you meet the criteria. With this year's budget keen to push on investment growth and build on the success of Supertax, there's no better time to start investing in your technology needs.