Full expensing explained: a small business guide for 2024

The full expensing scheme being continued may be something of a relief for new UK small businesses: here’s all you need to know.

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According to Jeremy Hunt’s autumn statementfull expensing is here to stay

This is good news for newer small and medium-sized enterprises (SMEs) as the scheme will carry on throughout 2024, providing tax allowances for new businesses in need of R&D or other investments in their first year.

With the government introducing legislation to make full expensing permanent, this article will explain what it is, how it works, and whether it may benefit your startup.

What is full expensing?

Full expensing is a 100% first-year tax allowance which allows companies to claim a deduction from taxable profits that is equal to 100% of their qualifying expenditure. 

The allowance will help businesses to reduce corporation tax bills, but it is only available to limited companies who pay corporation tax

It is “the largest business tax cut in modern British history” according to Hunt. This will cost the government £11bn a year, “but today it is affordable”.

The Treasury also made their statement on the matter:

“Due to the success of full expensing we are making it permanent. This means that companies that invest in the UK will reduce their tax by up to 25p for every £1 they spend on plant and machinery.”

What assets does full expensing cover?

Qualifying “plant and machinery” includes:

  • Warehousing equipment such as forklift trucks
  • Tools such as ladders and drills
  • Construction equipment such as bulldozers and excavators
  • Machines such as computers and printers
  • Vehicles (such as lorries, tractors and vans)
  • Office equipment such as chairs and desks
  • Some fixtures such as kitchen and bathroom fittings
  • Fire alarm systems

There are exceptions though. For example, Cheryl Sharp, founder and CEO of Pink Pig Financials explains that items must also be new.

“If you’re looking to replace any equipment you’ll need to weigh up whether the higher cost of new outweighs the savings against your tax bill,” she says. 

A business expenses tip on repairs:

  • Claim repairs as business expenses if you’re a sole trader or partnership
  • Deduct from your profits as a business cost if you’re a limited company.

What happened to ‘super deductions’?

Full expensing is not the Government’s most generous offer ever: the previous Super Deduction regime allowed businesses to deduct 130% of the value of qualifying assets from Corporation Tax. Full expensing is less generous in what you are allowed to expense, but saves you the same amount of tax per pound because Corporation Tax rates have risen in the meantime.

Sharp states: “Although this isn’t quite as good as the super deduction rate, it does help to soften the blow of the increased corporation tax rates.” 

What other capital allowances are available for SMEs?

As well as full expensing, UK businesses may utilise other forms of capital allowance in combination with full expensing, or if your enterprise isare not currently eligible at this time. Other capital allowances include:

  • Annual investment allowance (AIA): this allows businesses to claim 100% of the cost of plant and machinery up to £1 million a year.
  • Writing down allowances (WDA): this allowance spreadsspread the tax deductions over time at 18% and 6% a year for main rate and special rate expenditure respectively. According to the gov.uk website, the percentage you deduct depends on the item. For business cars for example, the rate depends on their CO2 emissions.
  • First-year allowances (FYA): allows a company to claim a percentage of the cost of plant and machinery investments in the year it is incurred.
  • Structures and buildings allowances (SBA): you may claim 3% a year on qualifying costs up until the 33rd-and-a-half year of your businesses incorporation.

When it comes to full expensing and other allowances, the plant or machinery must be brand new and unused, not second-hand. 

As with anything, check with your accountant, financial advisor and/or legal professional before making any huge purchases, and be sure to record all business expenses appropriately with quality accounting software that adheres to the ‘Making Tax Digital’ guidelines for maximum protection and benefits.

“It is not a one-size-fits-all solution,” says Alastair Hazell, Founder of The Calculator Site. “Each business should carefully consider the best way to utilise these tax benefits, and in some cases, seeking expert guidance could be beneficial.”

Where can I get more help?

To find out more about how to use the full expensing allowance you can visit the government website or speak to your accountant. Having the right accounting software for your small business will also help you access and collate the information that you need.

Autumn Statement: a political hot potato?

Hunt has said he did not opt for “crowd-pleasing taxes” in his autumn statement as a pre-election giveaway, and emphasised that the government’s main “long-term goal” is simply to boost the economy.

“I could have unfrozen some of those [income tax] thresholds, I could have done things like inheritance tax, I chose to cut the taxes that will make the best long-term difference to our growth and prosperity. Those aren’t necessarily the taxes on the tip of everyone’s tongue but they are the taxes that will make the biggest difference.”

These tax cuts have also put the Labour party in a tricky position with a general election coming, risking losing voters if it decides to reverse the government’s decisions.  

Here are a few other key notes and comparisons of the updates that will affect SMEs this quarter for quick and easy reference:

Spring statement 2023Autumn statement 2023
- Full expensing was introduced, but with a deadline/cap: Hunt only gave SMES until 1 April 2026 to claim.

- Small business multiplier: A one year 75% discount on business rates up to £110,000.

- Corporation Tax: The main rate of corporation tax was increased tp from 19% to 25%
R&D scheme updates (for larger companies): The Research and Development Expenditure Credit (RDEC) for large companies will increase from 13% to 20% of qualifying expenditure.
- Full expensing now permanent

- Small business multiplier continued
AI investment: An additional £500m has been allocated for the development of computing power for artificial intelligence.

- NI contributions: From January employee national insurance contributions will drop from 12% to 10%, which is a £450 tax cut for the average worker earning £35,400.

- Self employment changes: From April 2024, self-employed workers will no longer have to pay class 2 NICs (which were £3.45 a week). class 4 national insurance at 9%. That will go down to 8%. Taken together, these measures will save self-employed workers £350.

- R&D scheme updates: loss-making companies that are taxed within the R&D scheme will now have their rates reduced from 25% to 19%. The threshold for additional support for R&D intensive loss-making SMEs will be lowered to 30%.
Further business rates discount for hospitality, retail and leisure: worth £4.3bn.

Thoughts from the small business community

While some have applauded this move, others have reacted with caution or discontent.

Mike Dean, co-founder and managing director of Whisper Claims tells Startups:

“My personal opinion is that this is driven by the Government’s desire to have a more easily managed scheme, and has nothing to do with the potential impacts on businesses. 

The smallest of businesses are those that require most help and support yet all of the recent changes are balanced against them – this seems like a fundamental error by the Government.”

Robert Garbett, CEO of Drone Major Group, is also adamant that the longstanding R&D strategy that the full expensing scheme aims to aid is still fundamentally flawed. 

“Many of the innovation funding organisations that distribute much of this funding are private companies whose entire business is based on bidding for and expanding Government money,” he explains. 

“This has resulted in the emergence of a self-perpetuating industry focused almost entirely on handing out taxpayers’ money, without a proper strategy for how to bring important emerging technology to market.”

Others remain optimistic, however, and believe this permanent change are a step in the right direction at least. 

“Generally speaking, these are good measures,” Rafie Faruq, cofounder and CEO of Genie AI says. “The R&D Scheme has long been bureaucratic and cumbersome for little marginal benefit.”

Business tax rules and deadlines for SMEs

Tax knowledge is essential for all business owners – here’s how you do your taxes correctly, and the key dates you’ll need to complete them by.

Written by:
Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 14 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.

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