Think Tank

The power of ‘Full Expensing’ in the Construction Industry

My colleague, Clive Barron, has released his article relating to a new ‘Full Expensing tax relief’ for companies incurring significant capital expenditure.

As Head of the Property & Construction Team at Old Mill, I would like to discuss the potential of this Full Expensing tax relief and how this shift in capital allowance offers an opportunity for construction businesses, particularly larger ones, to review their investment strategies.

6th December 2023

Immediate tax relief on investments

Full Expensing allows companies to claim 100% first-year relief on qualifying new plant and machinery. Its introduction and confirmation from the Government that it’s here to stay is a game-changer for construction companies, which typically have high capital expenditure on equipment.  Contrary to the Annual Investment Allowance (AIA), Full Expensing has no cap on the amount of expenditure that qualifies. For large-scale construction projects, this means there’s no upper limit to the investments that can be made tax-efficiently.

Incentivising modernisation

The focus on new and unused equipment encourages construction businesses to invest in modern, efficient machinery. This not only enhances operational efficiency but also aligns with sustainability goals.

Beyond the Super-Deduction

Transitioning from the Super-Deduction to Full Expensing is not just a policy change; it’s a strategic shift. The Super-Deduction was a great start, but Full Expensing extends this benefit, with the added advantage of being a long-term measure. This offers businesses the certainty needed for long-term planning and investment.

Asset disposal considerations

It’s worth noting proceeds from the sale of assets that benefited from Full Expensing are taxable and strategic asset management should be in place to maximise benefits and minimise tax liabilities.  Regular dialogue with us as your advisers is important here.

The operative-provision advantage

In construction, renting equipment with operators is common. Full Expensing is applicable here, which is a significant boon for projects requiring specialised machinery.

Coexisting with Annual Investment Allowance (AIA)

AIA continues to run alongside Full Expensing. While AIA’s £1 million cap makes it less suitable for larger investments, it remains valuable for smaller or second-hand purchases. The coexistence of these two allowances provides a flexible framework for construction companies to optimise their tax positions.

Forward-thinking tax strategies

The introduction of Full Expensing showcases the Government’s commitment to fuelling investment and growth in key sectors like construction. This is an opportunity to rethink investment strategies, focusing on long-term asset acquisition and efficient tax planning.

Final thoughts

Full Expensing is not just a tax relief; it’s a strategic asset for the construction industry. It encourages modernisation, efficiency and growth. Construction businesses would do well to take advantage.

If you are reading this and would like to discuss strategic planning further, then feel free to contact me