Permanent full expensing will give business leaders confidence to invest

As expected, the Chancellor announced in Wednesday’s Autumn Statement that the full expensing capital allowances regime announced in the Spring Budget will be made permanent.

Initially due to run until 2026, this valuable relief allows companies to deduct spending on qualifying expenditure on plant and machinery from profits.

Martin Dye, Director at Evelyn Partners, the wealth management and professional services group said, “Leading UK businesses and trade associations have recently advocated that extending the full expensing regime beyond the current three year duration will significantly help unlock business investment and pave the way for growth.

“Businesses need to be able to plan ahead so making this valuable relief permanent will help give leaders the confidence to plan long term investment in plant and machinery. This in turn will create new jobs in the UK and help bring the much-needed economic growth that was at the heart of the Chancellor’s Autumn Statement address today.

“When the full expensing scheme was announced in the Spring Budget it was widely welcomed by businesses particularly given that the ending of the super deduction capital allowances scheme coincided with an increase in corporation tax to 25% from 1 April 2023. Full expensing brings a cash tax saving of 25% for expenditure on qualifying plant and machinery so this scheme will certainly help to continue to stimulate investment.

“One of the key criticisms of full expensing was that it was costly, estimated at £11bn a year for the first three years and, although it stimulated short investment much of the ‘new’ investment was brought forward that may have happened later.

“Making full expensing permanent will promote more new long term investment and will reduce this upfront cost significantly to a an estimated cost of £1bn to £3bn¹ per annum, by increasing the level of business investment by up 21% per year by 2030/31 (an extra £50bn) that would promote a 2% boost to GDP².

“There also remains questions on how effective full expensing is at promoting the ‘right type of strategic investment’, particularly as businesses and the UK look to push innovation and meet net zero requirements. For example, the full expensing regime provides 100% tax relief for racking in a warehouse, but only a 50% first year allowance for PV panels or expenditure on more energy efficient lighting or air-conditioning.

“While the announcement that full expensing will be made permanent is great news for companies, it also remains disappointing the relief still does not apply to individuals and partnerships with individuals.”