2023 March Budget analysis – super-deduction tax break replaced by ‘Full Expensing’

On Wednesday, the Chancellor of the Exchequer, Jeremy Hunt, presented his 2023 March Budget to parliament, laying out his plans for the UK economy.

One small but significant part of his announcement regarded the future of the super-deduction tax break, which was introduced in April 2021 to encourage businesses to invest by allowing them to deduct 130% of qualifying investment costs from their profits when calculating the amount of tax they’ll need pay.

It was a fantastic incentive for businesses in a challenging time for the UK economy, however it is due to end on 31st March 2023 and be replaced by something called ‘Full Expensing’. So, what is Full Expensing?

What is Full Expensing?

Thankfully, tax breaks for business investment are not due to end. Full Expensing, set to take over from the super deduction when it ends this month, will allow businesses to deduct 100% of qualifying investment costs from their profits before tax.

This new scheme is initially set to last for three years, “with the intention to make it permanent.” It will allow every single pound spent on IT equipment, plant or machinery to be immediately deducted from a company’s profits when calculating their tax bill.

In practice this means that until March 2026, for every £1 invested in qualifying expenditure, businesses will be able to save up to 25p on their tax bill.

It’s claimed that this will result in a total of £9 billion a year saved in tax by UK businesses, making it one of the most expensive initiatives in the Chancellor’s budget.

How is Full Expensing different from the super deduction?

The super deduction allowed businesses to deduct 130% of their investment costs from their tax bill, while the new scheme will only allow 100%. This rate is, of course, lower, but the actual value of savings businesses can make is expected to be a similar amount in light of corporation tax increasing from 19% to 25%.

It has been suggested that the reason for the super deduction being higher was to prevent businesses from delaying investment in their business until the corporation tax rise in order to get greater benefit.

So, ultimately, the opportunity for businesses to invest and save on their tax bill remains similarly attractive. I welcome this extension of the incentive as Britain looks to revitalise its economy and business owners explore opportunities for growth.

At Allica Bank, we’re able to help established businesses with 10-250 employees invest in new equipment using asset finance. If you’d like to find out more about how we can help your business, or you’d like to learn more about the new scheme, one of our relationship managers will be happy to talk to you. Find your relationship manager now.