All change for capital allowances

The 'super deduction' capital allowances, which provide companies with a deduction of 130% of the cost of new plant and machinery, will end for expenditure incurred after 31 March 2023 as scheduled.

The Chancellor has proposed a new system of full expensing of the cost of all plant and machinery, including IT equipment, purchased new and unused by companies between 1 April 2023 and 31 March 2026. This is effectively a 100% first year allowance for the assets which would have qualified for the super deduction.

The Chancellor indicated that this relief may be made permanent after a review but that review is likely to happen after the next General Election, so the lifespan of this new tax relief may be in doubt.

Most businesses (not just companies) already qualify for the annual investment allowance (AIA) which provides tax relief on 100% of the cost of plant and machinery in the year of purchase for up to £1m of expenditure per year. The AIA covers a wider range of assets including items acquired second hand and plant that is leased out but not cars.

Assets qualifying for the special rate deduction of 50% will continue to benefit from that rate when the items are purchased new and unused by companies until 31 March 2026.