Jeremy Hunt recently announced a new investment allowance, in an attempt to soften the impact of the much-criticised corporation tax hike.  But will it work? 

Revealed in the Spring Budget, this new scheme will replace the super-deduction and allow companies paying Corporation Tax to offset the entire cost of qualifying assets against tax in the year of purchase, resulting in an effective 25% reduction in investment costs.

Basically, this new allowance means that any companies spending money on new plant or machinery (broadly defined, from office furniture to wind farms) can be deducted from taxable profits immediately, instead of over a few years.  It will be available from 1 April 2023 to 31 March 2026 with a view to make full expensing permanent.

According to the Office for Budget Responsibility (OBR), this new allowance will increase business investment by 3% every year, with Hunt confidently stating that the UK will be the only country in Europe with this type of allowance, so it should make the country more attractive for businesses looking to invest in new buildings or machinery. It remains unclear whether this estimate of stimulus factors in the removal of the super deduction and/or the making permanent of the Annual Investment Allowance (AIA). The permanence of the AIA effectively means that the full expensing regime will predominantly benefit larger businesses spending in excess of the £1m AIA limit. 

To discuss how the new regime may affect your business, or investment plans, please contact one of our business tax team.

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