By Emma Wilson, Partner
When full expensing was introduced in 2023, it signalled a major change in the way that businesses could claim capital allowances.
Instead of writing down qualifying plant and machinery over several years, full expensing allowed for the immediate deduction of 100 per cent of the cost from their taxable profits in the year the expenditure was incurred.
However, the scheme was originally only supposed to be a temporary boost to the economy and was set to come to an end in 2026.
Now, full expensing is set to become a permanent feature with a guarantee to last until 5 April 2027.
With the prospect of full expensing being a part of business financial planning going forward, now is the time to consider how best to leverage the scheme to maximise your business’s finances.
How does full expensing work?
As a per-asset, per-year relief, full expensing is a good way to boost a business’s financial health.
There is no cap on the number of times you can use full expensing within a year, so long as the purchase is eligible for relief then it is covered.
Eligible purchases must be:
- New and unused
- Main rate plant and machinery
- Purchased outright, on hire purchase, or leased
- Not a car
How can I leverage full expensing?
While it is set to be a permanent feature of business finance going forward, full expensing is only guaranteed until 2027.
To be safe from any potential reversal of government policy, it may be wise to make any big investments before April 2027 to be sure that full expensing can apply.
However, there is still scope to use full expensing in both the current tax year and the next.
Consider splitting big investments between these two periods to ensure that you do not overinvest in expensive equipment and risk negatively impacting your working capital.
Full expensing gives businesses more power to make financial acquisitions by offsetting much of the cost.
This can be factored into your business plans and allow for a steadier path to growth.
When negotiating with lenders, it is worth keeping in mind the lower effective cost of capital that full expensing provides, such that you may be able to secure more favourable terms.
Full expensing is claimed through the Company Tax Return in the capital allowances section and does not need a dedicated form to be completed.
This makes it a convenient aid for growth for a business that seeks to expand its functionality.
Knowing what financial options are available to you and how to effectively leverage them is the key to running and growing a successful business.
Seeking professional help is always wise before investing to ensure that you are fully compliant with regulations and can maximise your growth without jeopardising your business’s long-term financial health.
Our team can help you navigate the pathways needed to increase the financial health of your business.
Don’t miss out on vital funds. Speak to our team today!