Permanent full expensing big step towards ‘simple, stable, generous’ system

Adrian Rudd, Chair of the CIOT’s Corporate Taxes Committee commented:

“Making full expensing permanent is a welcome move that enhances simplicity, stability and the incentive to invest in plant and machinery.

“There has been too much tinkering with rates of capital allowances over the years. Hopefully, alongside the commitment to retain a permanent high level for the Annual Investment Allowance, this will be the bedrock of a simple, stable and generous system of capital allowances that makes capital investment an attractive proposition for UK business.”

However CIOT has also pointed out some of the limitations of full expensing –

• It only applies to expenditure on plant and machinery so will not help businesses that invest in other things – for example, structures and buildings or mineral exploration and extraction.
• Leased assets are also excluded, as are various ‘special rate assets’ such as equipment with an expected business life of 25 years or more (long life assets).
• It only applies to corporates, so it will not benefit partnerships of individuals such as farming partnerships, that may have significant capital investment in equipment such as large dairy facilities, and accounting or law firms that may wish to invest in their IT infrastructure.
• It is unlikely to be helpful to project companies that are loss making in the first few years of a long-term project. This is because claiming the full expensing relief will only increase the amount of losses that will then be restricted in subsequent years as a result of the corporation tax loss restriction rules.
• Full expensing is only relevant to the 1% of companies whose qualifying expenditure on plant and machinery is above £1 million a year. The remaining 99% already get full relief from the Annual Investment Allowance so gain no additional benefit from full expensing.

The Government has announced there will be technical consultations on (a) extending full expensing to assets for leasing and (b) wider changes to simplify the UK’s capital allowances legislation.

Adrian Rudd commented:

“These consultations provide an opportunity to take a fresh look not just at the rates and timing of investment incentives but at what they are available for. Simple, stable and generous must be the watchwords.”