Full Expensing For Businesses Made Permanent - Value For Money?

24th November 2023

The Chancellor has announced the permanent extension of their ‘full expensing' (FE) policy, temporarily introduced for three years in March 2023.

This policy allows companies (not including unincorporated businesses such as self-employed, sole traders and partnerships) to immediately write off the full cost of investment in new plant and machinery, classified as a ‘main rate' asset, against taxable profit in the year that the investment cost incurred.

‘Special rate’ assets receive a first-year allowance of 50% of investment expenditure. Prior to the permanent extension, these rates would have returned to the 18% and 6% ‘writing-down allowance’ from April 2026. Under FE, the value of investment that can be written off is uncapped. Prior to the introduction of the temporary FE policy, a temporary 130% super deduction was in place between April 2021 and March 2023.

Under temporary FE, businesses were incentivised to bring forward investment into the 2023-26 window, but investment was expected to fall again once the measure expired, resulting in no effect on long-run level of capital stock. The introduction of the permanent measure is expected smooth out this investment curve, lowering investment in the short-term by £11bn, but raising investment in the medium term by £25bn (Chart [x]). This additional £14bn in total business investment by 2029 averages to a £3bn increase per year.

Source
https://fraserofallander.org/autumn-statement-reaction-a-tax-cutting-statement-that-continues-to-raise-taxes-amid-slowing-growth-and-what-does-this-mean-for-scotland/