Spring Budget 2023: corporation tax and capital allowances

15 March 2023

Companies and unincorporated associations that pay Corporation Tax will have the charge increased to 25% for the financial year beginning 1 April 2023.

The rate for non-ring-fenced profits will be increased to 25% applying to profits over £250,000.

A small profits rate will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

Full expensing (FE)

Hunt announced that companies will benefit from 100% full expensing (FE), on qualifying new main rate plant and machinery investments.

It is effective from 1 April 2023 to 31 March 2026 and will apply to spending on main rate equipment, which includes but is not limited to:

  • warehousing equipment such as forklift trucks

  • tools such as ladders and drills

  • machines such as computers and printers

  • office equipment such as chairs and desks.

FE allows companies who are subject to Corporation Tax to write off the cost of investment in one go, deducting the costs from taxable profits in the year that expenditure is incurred. This results in a 25p tax saving for every £1 invested.

50% first-year allowance (FYA)

FYA lets taxpayers deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long life assets such as solar panels and thermal insulation on buildings.

This was introduced with the super-deduction and was due to come to an end on 31 March 2023, however, Hunt announced this would be extended to 31 March 2026.

As part of his commitment to maintain a stable economy, the Chancellor’s long-term ambition is to make 50% FYA permanent.

Annual Investment Allowance (AIA)

Unincorporated business and most partnerships cannot claim FE, however, these businesses are entitled to claim the AIA.

The AIA offers the same benefits as FE for the investments it covers (up to £1 million per year), providing 100% first-year relief for plant and machinery investments up to £1 million.

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