The recent news in the Autumn Budget Statement regarding the full expensing of capital allowances on plant and machinery was easy to miss if you weren’t paying close attention. It is a welcome piece of news and provides certainty for businesses looking to invest long term. In a move intended to boost investment and growth, the 100% upfront tax deduction for UK capital expenditure on plant and machinery will now become a permanent fixture (it was due to end in March 2026).
Full expensing a 100% first year allowance – is available on most plant and machinery and a 50% first year allowance is available for specific ‘long-life’ capital assets. Also, there is no cap on the amount of the amount of expenditure that can qualify for relief. These allowances effectively allow a business to deduct the costs of plant and machinery from their profits thereby reducing their tax liability so for every £1 invested, the company will save 25p.
This will encourage ambitious businesses to invest as they have more certainty and there will potentially be a positive knock-on impact for grant funding. Projects that have been stalled or shelved and ideas that have been put on ice will have an incentive to bring to life. This in turn should encourage businesses to seek grant funding to maximise the opportunity presented. It may be necessary to apply some lateral thinking to see how this might happen.
Grant funding can be used to purchase complementary assets as part of a wider project. After all, plant and machinery is typically a means to an end. Unless it is for straight replacement of worn out or inefficient equipment, it will produce additional goods that will be sold to customers as part of a wider expansion plan. An example where grant funding might be complementary is commercial property to house the machinery – whether its renovation, enhancing energy efficiency or extension, there are grants for all these purposes, for example there are £150,000 capital grants from Growth Works in Cambridgeshire. These types of assets won’t attract the 100% tax deduction under the new rules so grant funding will be a good alternative.
Also, where matched funding is required from the grant scheme, the savings from fully expensing can help. Thinking about the wider objectives you have and how different funding options can combine to give your plans a real boost will be a sensible (and clever) approach. It will also give you a competitive edge which will be long lasting!