Chancellor Jeremy Hunt’s “Autumn Statement for growth” brought ongoing support for innovative businesses, introducing new measures and extending existing ones to bolster “Europe’s most innovative economy”.
One such measure, now-permanent Full Expensing, allows capital-reliant businesses to claim a deduction from taxable profits of up to 100 per cent of their expenditure on qualifying plant and machinery.
Existing in addition to the Annual Investment Allowance (AIA) of £1 million, the measure applies to incorporated businesses which spend over this threshold on qualifying plant and machinery.
Despite its predicted impact, the policy has given rise to misconceptions over its purpose and qualifying plant and machinery that could cause businesses to miss out, says North London accountancy firm, Grunberg & Co.
“It’s important than business owners understand when and how they can use Full Expensing,” said Nimesh Patel, Tax Partner at Grunberg & Co.
“Many SMEs will not see a benefit of it as they are either unincorporated or not spending more than £1 million on plant and machinery.
“The initiative will only benefit larger incorporated businesses with more capital expenditure than the threshold for the AIA.
“However, there is sometimes a misconception that this scheme is designed to boost SMEs, but the purpose of the initiative is to help the economy grow as a whole.”
The firm subsequently urged eligible business owners to seek advice on doing more to take full advantage of the scheme’s allowances – including keeping a close eye on their accounting periods.
Nimesh continued: “Capital allowances are given based on the company’s accounting period, so the timing of expenditure is important.
“Companies that are approaching their accounting period end may want to bring forward planned expenditure on plant and machinery, so the corporation tax relief applies earlier.”
Finally, the firm warned business owners to be aware of what qualifies under the policy and not end up claiming for ineligible items – resulting in a significant unexpected expense.
“It is important that companies are aware of which assets qualify for Full Expensing and the rate that applies,” said Nimesh.
“Full expensing allows 100 per cent allowances to be claimed in respect of expenditure on what is considered to be “main rate” plant and machinery.
“The rate is reduced to 50 per cent for expenditure on “special rate” items.
“Companies should also be aware that if 100 per cent full expensing has been claimed on an asset which is subsequently sold, the amount it is sold for becomes taxable as a balancing charge.
“The overall impact is that full expensing is only retained on the fall in value of the asset, so the allowance ends up being less than 100 per cent.
“It is important that companies take advice before selling such items, so they can make the right provision for corporation tax.”
“There are also certain assets that are entirely excluded from full expensing such as cars and second-hand items. Therefore, it is important that companies take advice when planning such expenditure on assets.”
