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Changes to how businesses can deduct capital expenditure, as announced in the Spring Budget, have come into effect from the 1st April.
The changes, comprising 100% full expensing and a 50% first-year allowance, are estimated to save businesses around £27 billion in corporation tax over the next three years, and encourage organisations to invest and grow. The savings come despite the rate of Corporation Tax increasing to 25%.
The new package is set to be the most generous capital allowance regime in the OECD group of most developed nations, and is predicted to boost investment by 3% over the next three years, according to the Office of Budget Responsibility.
Full expensing lets companies deduct 100% of the cost of certain plant and machinery investments from their profits before tax. It is available from 1 April 2023 to 31 March 2026. It provides the same generosity as the super-deduction, saving firms up to 25p in every £1 of qualifying investment and is for main rate assets – such as construction, warehousing and office equipment.
The 50% First-Year Allowance lets companies deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase; this includes long life assets such as solar panels and lighting systems.
Victoria Atkins, Financial Secretary to the Treasury, said:
“We are determined to make the UK the best place in the world to do business, which is why from today businesses can start to benefit from the raft of tax cuts on offer to boost their growth.
“With full expensing, the more a company invests the less tax they’ll pay, and I encourage companies of any size to take full advantage of this world-leading reform.”
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