The First Year Allowance Full Expensing

The Latest UK Tax Incentive for Businesses

This article from Tax Journal was first published in April 25, 2023. The entire publication is available at: https://www.taxjournal.com/articles/the-first-year-allowance-(or-full-expensing).

The government has regularly acknowledged that ‘business investment has been a long-standing weakness in the UK’ and the overall tax treatment provided for capital investment was less generous than the OECD average. In a reversal of the policy orthodoxy of the past three decades, a new 100% first-year deduction for plant and machinery expenditure was introduced from 1 April 2023, at the same time as the corporation tax rate increased from 19% to 25%. The government believes this change ‘will mean that the UK now has the joint most generous capital allowance regime in the OECD’.

Although branding the new deduction as ‘full expensing’ was novel, the new deduction is in fact a 100% first-year allowance that sits within the existing legislative framework in the Capital Allowances Act 2001. In many respects, it is a replacement for the ‘super-deduction’ which ended on 31 March 2023, but without the 30% uplift. The change in the corporation tax rate means the post-tax saving is unchanged, and the same exclusions, exceptions, and specific rules apply.

Tax experts at FTI Consulting in London review the new deduction and highlight the key technical and practical points for businesses.

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Republished with the permission of Tax Journal. ©Copyright 2023. The views expressed herein are those of the author and do not necessarily represent the views of FTI Consulting, Inc. or its other professionals.