Spring Budget 2023: company investments

The main rate of Corporation Tax is 25 per cent from 1 April 2023. Where company taxable profits are below £50,000, the 19% rate applies; profit between £50,000 and £250,000 are taxed on a sliding scale between 19 per cent and 25 per cent.

With the current temporary “130 per cent super-deduction” due to expire on 31 March 2023, measures were announced to encourage continued business investment from 1 April 2023.

“Full expensing” will be introduced from 1 April 2023 until 31 March 2026, allowing companies liable for corporation tax to benefit from a 100% first-year allowance (FYA) for capital expenditure on qualifying plant and machinery. This deduction will allow companies to potentially reduce tax payable by 25p for every £1 invested in eligible plant and machinery.

The 100% FYA will be available for expenditure on new and unused plant and machinery that ordinarily qualifies for the 18% main rate of writing down allowances. A temporary FYA of 50% will also be available for expenditure on new and unused special rate plant and machinery, including integral features in a building, and long-life assets that normally qualify for 6% writing down allowances. This represents no change from the former temporary FYA that has been available since 1 April 2021 for expenditure on these assets.

The measures announced will only apply to qualifying expenditure on “new” and not “second hand” or “used”, plant and machinery from 1 April 2023, although it is not clear whether the FYAs will only apply for expenditure incurred under contracts entered into after 15 March 2023. Such provisions existed for both the super-deduction and Special Rate allowance, where expenditure was only qualifying if incurred under a contract entered into on or after 3 March 2021. Plant and machinery must also be owned in the period FYAs are claimed; certain deposit payments without legal title passing in the same period may not be eligible.

Any expenditure that has been subject to full expensing or the 50% FYAs will be subject to an immediate balancing charge on disposal of the plant and machinery. This will be equal to 100% of the disposal value for full expensing and 50% of the disposal value in respect of the 50% FYAs.

In relation to the Annual Investment Allowance (AIA) Legislation will be introduced to permanently increase the rate of the Annual Investment Allowance (AIA) from £200,000 to £1 million per annum for expenditure on qualifying plant and machinery. Companies will need to consider the allocation of the AIA in conjunction with any expenditure not eligible for 100% full expensing and/or the 50% FYA.

The new measures will be welcomed by companies and businesses planning to invest. With the full expensing announcements being introduced for at least 3 years, and potentially permanently from 2026, and the AIA of £1 million being made permanent, a period of certainty has been introduced for companies making investment decisions.

However, as with previous announcements, it will be necessary to consider the legislation in full to see the detail behind the changes announced, and any specific exclusions from the rules.

For further information, telephone (028) 82241515.