Using “full expensing” to drive business investment

The Budget’s “full expensing” measure to drive business investment

One of the Spring Budget’s main highlights was the introduction of full expensing. It’s a measure designed to incentivise business investment – something the government has described as a “long-standing weakness in the UK”.

Full expensing will help companies investing in plants and machinery from 1st April 2023 until 31st March 2026. It launches as the previous super-deduction tax cut comes to an end and corporation tax increases to 25 percent.

Companies can claim 100 percent capital allowances on qualifying investments, allowing them to write off the cost of investment in one go. The amount of expenditure that can qualify is uncapped, so theoretically the more that is invested, the greater the tax savings.

Watch the full video below:

Full expensing vs super-deduction

Full expensing follows the temporary super-deduction measure that was announced in the Spring Budget in 2021. The super-deduction allowed businesses to deduct 130 percent of the cost of qualifying expenditure from profits before tax, and aimed to encourage businesses to bring investment forward after the pandemic.

One of the biggest criticisms levelled at full expensing so far is that it’s less generous than the super-deduction. David Fort, Partner at Haines Watts, describes full expensing as “better than nothing” but something that’s hard to get excited about.

In a way, I think we're lagging behind some of the other major economies in terms of business and taxation. We've always prided ourselves on attracting business to the UK, but I'm just not seeing that with some of the tax legislation coming through. I can’t see that it would make people make that decision to come to the UK.

The other main criticism is the temporary nature of the policies. Major investments like factory machinery require planning – so businesses need to know that reliefs won’t disappear in three years’ time. As David adds:

Give us a five-year plan. Tell us what the tax rate is going to be. Don't mess with the rate and let's get on with it. We've had so many changes in direction and clients can't make long-term or even medium-term decisions based on what we've currently got.

A stimulus for spending

As Martin Gurney, Tax Partner at Haines Watts, puts it, the Budget was never going to be a generous giveaway while the government is still faced with reconciling Covid spend. 

We’re in some fairly challenging global economic times. They seem to recognise that and are doing their best, certainly, in my view, to try and keep this economy stable and afloat. They’re working within some fairly severe constraints due to Covid spending that has put their plans quite significantly in arrears.

I think they’re trying to give people the confidence that they can carry on doing business and adding a bit of a stimulus for spending. There are no massive surprises or giveaways, but with the changes to capital allowances, they appear to be approaching it sensibly.

Got a question?

If you’re struggling to navigate the latest Budget announcements or have a question about tax, our friendly team is here to help. A lot of our regional partners are business owners themselves, so they can empathise and help to advise on a peer level. 

Find your nearest Haines Watts office or send us a message using our contact form.