Full expensing – exclusions to the claim

A guide to the new capital allowance regime of unlimited full expensing

IP image

From 1 April 2023 until the end of March 2026, a new capital allowance regime of unlimited full expensing is available for companies with an immediate 100% deduction for expenditure on qualifying plant and machinery. With the corporation tax rate increase up to 25%, each pound of qualifying expenditure would save tax of 25p.

Legislation included in Finance (No. 2) Act 2023 provides for the introduction of:

  • a 100% FYA for expenditure on plant and machinery that would otherwise be included in the main rate pool (referred to as ‘full-expensing’)
  • a 50% FYA for expenditure on plant and machinery that would otherwise be included in the special rate pool.

Main features of these first year allowances are as follows:

  • these are restricted to companies
  • the assets acquired must be new – ie unused, not second-hand
  • the expenditure must be incurred between 1 April 2023 and 31 March 2026
  • the general exclusions from FYAs apply (as summarised below)
  • there is an immediate balancing charge where the asset is disposed of. The charge is equal to 100% of the proceeds where the 100% FYA has been claimed, and to 50% of the proceeds where the 50% FYA has been claimed.

As highlighted within this article on full expensing of plant and machinery, companies must watch the following exclusions when trying to claim this useful allowance or making key financial decisions that full expensing is not available on:

  • cars
  • second-hand assets
  • assets held for leasing
  • gifted assets
  • ships
  • railway assets
  • connected person transfers
  • special rate pool including integral features
  • thermal insulation
  • long-life assets.

However, in the case of leasing, a corporate landlord with commercial rental property can claim full expensing on fixtures which are affixed to the property. Whereas any moveable assets such as furniture within a rental property would not qualify for full expensing as they fall under assets held for leasing.

Furthermore, full expensing is a first-year allowance, a claim must be made in the period in which expenditure is ‘incurred’.

In summary, with all the recent changes impacting corporation tax for companies such as associated company rules, corporation tax rate increase, abolition of super-deduction and R&D relief changes it's essential to understand what expense qualifies and what doesn't.

Useful resources

ACCA article on associated company rules

HMRC guidance on full expensing