Full expensing and other core features maintained
The government will maintain the following key features of the capital allowances regime:
Full expensing
The 100% first-year allowance for companies on qualifying new main rate plant and machinery, along with the 50% first-year allowance for qualifying new special rate plant and machinery. This positions the UK as the only major economy with permanent full expensing.
Annual investment allowance
The 100% first-year relief for plant and machinery investments up to £1m, available for all businesses, including unincorporated businesses and most partnerships.
Writing down allowances
Flexibility within the capital allowances system will continue, allowing businesses to choose which writing down allowances to claim for main rate and special rate plant and machinery.
Structures and buildings allowance
This allowance will provide relief for capital expenditure on the purchase, construction and renovation of new non-residential structures and buildings.
Areas for further exploration
The government will seek to work closely with stakeholders to further explore the following issues:
Clarity on capital allowances
Efforts will be made to provide businesses with clearer guidance on what qualifies for different capital allowances. Recent guidance changes from HMRC address common uncertainties, such as the treatment of computer software and the interaction between the annual investment allowance and full expensing.
Simplification
The government appreciates input from the full expensing simplification working group and will continue this work at a measured pace during this Parliament. The goal is to consolidate and simplify the Capital Allowances Act 2001 without materially changing the eligibility of expenditures for full expensing or the claims process, making the system more straightforward for businesses.
Predevelopment costs
In light of concerns following the Gunfleet Sands Ltd vs. HMRC (2023) decision, the government will consult with affected stakeholders in the coming months to understand the impact of tax rules on predevelopment costs. This aligns with the government’s commitment to encourage investment in renewable energy and major infrastructure projects.
Extending full expensing to leasing
The government acknowledges the case for extending full expensing to assets bought for leasing, based on contributions from the leasing industry working group. This change will be explored further when fiscal conditions permit.