The full expensing regime allows companies to claim 100% capital allowances for expenditure on qualifying plant and machinery. This means that companies paying the main rate of corporation tax obtain tax relief of 25p for every £1 of qualifying expenditure.

Full expensing operates alongside a 50% first-year allowance for expenditure by companies on new special rate assets (such as integral features, long-life assets, etc) that was also due to expire on 31 March 2026. The first-year allowance will also become permanent.

ICAEW welcomes this announcement. Making these reliefs permanent will provide much-needed certainty to companies, a point that ICAEW called for in its representation to HM Treasury ahead of the Autumn Statement.

Expenditure on plant and machinery for leasing remains excluded from full expensing. The government will continue to explore potential solutions for the leasing sector.

However, the underlying rules for capital allowances could also benefit from a review. The recent Upper Tribunal decision in Gunfleet Sands Limited & Others v HMRC highlights the potential for the tax system to provide no tax relief for business expenditure. In that case, the Tribunal decided various environmental impact and technical/engineering studies performed as part of the process of establishing new windfarms was not qualifying expenditure “on the provision of plant or machinery”. Yet, as the expenditure was not revenue in nature, it did not qualify for a tax deduction on that basis either. 

The government will launch a technical consultation on wider changes to the capital allowances regime after the Autumn Statement. Hopefully the consultation will address anomalies such as these, although the consultation is not intended to extend the scope of expenditure that is eligible for capital allowances.

More reading:

• Capital allowances – permanent full expensing
• Autumn Statement 2023 – Permanent full expensing – technical consultation
• Terms of Reference: HMT-HMRC Capital Allowances and Leasing working group