Full expensing, what it means for farming in 2023
A number of measures were introduced in the March 2023 Budget to stimulate economic growth through investment, one of which being full expensing.
Full expensing means that 100% of the first-year allowance is available on the acquisition of most plant and machinery with no cap on the relief on the amount of qualifying expenditure. This means for a company paying 25% Corporation Tax that they will continue to have taxes reduced by 25p for every pound invested in eligible assets.
By boosting investment in the UK, full expensing may have positive effects on the economy in the long run with more investment comes more innovation, competitiveness, and productivity which may in turn boost higher wages, employment rates, and business growth.
Full expensing, the rules
Sole traders and partnerships may be eligible for the Annual Investment Allowance on plant and machinery which offers the same benefits as full expensing for investments up to £1m per year. All of the following must apply before the full expensing relief can be claimed:
- The expenditure must be incurred between 1 April 2023 and 31 March 2026.
- The expenditure must be on qualifying plant and machinery.
- To qualify, plant and machinery must be bought new and unused, second hand assets do not qualify.
- To qualify, plant and machinery must be bought to be used in the business and not be held for leasing/rental to customers.
HMRC considers most tangible capital assets (apart from land and building) used in the course of a business to be plant and machinery for the purposes of full expensing. Typically qualifying assets may include:
- Machines such as computers, printers, lathes, and planers.
- Office equipment such as desks and chairs.
- Vehicles such as vans, lorries, and tractors.
- Warehousing equipment such as forklift trucks, pallet trucks, shelving, and stackers.
- Tools such as ladders and drills.
- Construction equipment such as excavators, compactors, and bulldozers.
- Some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential properties.
Full expensing does NOT include cars, nor any assets that have been gifted to the company.
Restrictions on how full expensing assets
Companies can qualify for full expensing when they use a finance agreement where they opt for a hire purchase agreement, lease financing is excluded. Business owners wishing to invest in plant and machinery over the next few years could benefit from both the full expensing scheme by purchasing outright or through Asset Finance (Hire Purchase) could save on tax. Asset Finance could boost cashflow by eliminating the need for a hefty deposit when purchasing outright.
Tax specialists such as accountants or advisers can provide more information on the eligibility criteria and compliance requirements.