What does full expensing mean for businesses?

The Autumn Statement was delivered in the House of Commons by the Chancellor of the Exchequer, Jeremy Hunt, in late November.

The majority of changes announced were aimed at gearing up economic growth and unlocking investment. The measures were announced at the same time as the Office for Budget Responsibility (OBR) lowered its predictions for UK growth in 2024 and 2025 – from 1.8% and 2.5%, to 0.7% and 1.4% respectively.

The most significant announcement for businesses related to the ‘full expensing’ rules, which allow for a tax deduction for business expenditure on qualifying plant and machinery. These tax incentives were due to expire in 2026, but have been made permanent.

What is full expensing and how does it work?

Full business expensing, also known as ‘full expensing’ or ‘immediate expensing’ is a tax rule which allows businesses to deduct the full cost of capital expenditures (investment) from their revenue in the same tax year.

Traditionally, the cost of purchasing an asset is spread over its useful life by using a depreciation accounting method. However, full expensing rules accelerate the deduction, providing businesses with a significant upfront tax benefit. This rule is often introduced as a measure to stimulate investment and encourage economic growth.

What does full expensing mean for businesses?

The recent change to the rule in Spring 2023, which was made permanent in the Autumn statement, allows companies to deduct the full investment cost in the same tax year from any taxable profits rather than spreading over multiple years. It’s estimated companies can save up to 25p per £1 of capital spent on investment.

Companies that make large investments typically benefit the most from full expensing, as there is already an annual investment allowance covering capital investment of up to £1 million. Sectors such as manufacturing are likely to benefit more than other companies in the servicing sector, for example.

A permanent change to the full expensing rule is a positive step in the right direction. Encouraging businesses to invest in new products and machinery to make the businesses more cost-efficient and boost productivity can only be a good thing.

That said, we’re unlikely to see the result of the rule change for some time. Many businesses (especially larger ones) will plan ahead and allocate capital for purchases several years in advance. The current economic backdrop of rising interest rates, high inflation and low consumer spending is unlikely to send business owners on a spending spree.

What should businesses take into account?

• Full expensing is only available on plant and machinery like lorries, drills and office chairs, so it’s important to make the asset you’re looking to buy count as a qualifying asset. For example, buildings and land aren’t usually covered.
• Like any purchase, it will need to make sense from a business perspective.
• How will it help grow your business?
• The assets you’re purchasing must be new and unused.

Tax rules are complex. We recommend speaking with a tax specialist if you’re planning a major business purchase as there could be other tax implications to consider.

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