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Spring Budget: Full capital expensing: positive overall but introduces ‘economic discrimination’ for struggling businesses

Introducing ‘full capital expensing’ in the Spring Budget brings excellent financial benefits to profitable firms. However, it also introduces economic discrimination for struggling businesses, claims an industry expert analysing the latest announcement.

Dr James Crosby, Head of Sustainability at energy sustainability consultancy Advantage Utilities, is concerned that the new policy – initially in place for the next three years – will mean that only businesses with a profitable income can achieve cost deductions.

Commenting on the announcement, Dr. Crosby says:

“On the one hand, full expensing provides an incredible opportunity for businesses which operate at a profit. It ensures they will achieve at least 19% deduction on net-cost and up to 25% for those with profits over £250,000.”

However, given we are at a point where there is significant increased costs to businesses, many companies have seen their profits reduce or are even at a loss. If a client wants to install new equipment, they only get a benefit if they have a profit they can deduct from.

Under this new initiative, companies struggling get no help.”

When the previous super-deduction was first announced in March 2021, it enabled businesses to claim up to a 130% deduction against profits for purchasing qualifying plant and machinery between 1 April 2021 and 31 March 2023. This was the most attractive tax incentive ever offered by the UK government, allowing companies to cut their tax bill by up to 25p for every £1 they invest in these assets. This was a ground-breaking and welcome introduction. Fortunately, a renewed policy has been introduced which will still offer excellent support for new projects. However, it is not a universal solution for all businesses and only assists profitably operating organisations.

Dr. Crosby acknowledges that the ‘full capital expensing’ scheme does enable businesses to make further strides towards net-zero through investment in assets such as energy efficient machinery, refrigeration units and tools. Furthermore, it will prove very enticing for energy efficiency improvements such as solar PV, solar thermal, LED lighting, energy storage solutions, electric vehicle ports and combined heat and power (CHP) systems.

“Profitable businesses are certainly being helped to reduce their energy costs, essential in this volatile market, and further accelerate their journey to net-zero. However, this new approach makes sustainability improvements and energy saving measures harder to attain for those businesses that are currently struggling to make a profit.

Start-ups are particularly at risk, especially considering that 60% go bust within three years. With 672,890 new businesses established in 2022, the new ‘full capital expensing’ scheme risks missing the mark in its mission to boost growth in future,” adds Dr. Crosby.

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Dr. James Crosby provides his analysis of what the latest Spring Budget means for UK businesses.

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