A new 40% tax allowance has come into effect that allows businesses to save on new ‘plant and machinery’ in the first year.
Plant and machinery is a broad term to describe assets that a company uses to operate its business aside from land and buildings. Examples include computers and IT, office furniture and air conditioning.
The new relief follows calls from businesses to expand full expensing to more assets and businesses. It will mean companies can deduct much of the cost of their investment in the year they make that investment, reducing their tax bill.
The relief will be available for assets bought for leasing and for unincorporated businesses, which do not benefit from full expensing – all while preserving the current incentives to invest.
Full expensing allows companies to claim 100% capital allowances on qualifying main rate plant and machinery investment, like warehouses or construction equipment. This means a company can deduct the entire cost of its investment from its taxable profits in year one. For every pound invested, its taxes are cut by up to 25p.
“Saving tax for businesses that are investing is key to building the confidence needed to boost growth,” says chancellor Rachel Reeves. “We are building on the UK’s capital allowance regime alongside capping corporation tax and enabling more scale ups to attract investment to help create a tax system that supports growth.”
In November, Reeves ruled out imposing a widely rumoured exit tax on business owners moving their firm out of the country.
