FE lets businesses deduct 100% of the cost of qualifying plant and machinery from their taxable profits, and replaces the outgoing super-deduction which provided tax relief at 130% of the cost of the asset. FE was originally announced in the 2023 Budget effective for expenditure incurred from 1 April 2023. 

For Ian Isaac, Managing Director, Lombard, the announcement is positive news: “Businesses need to invest in plant, machinery and other assets to improve their productivity and also be part of the Net Zero journey,” he says. “The proposal to make FE permanent will give businesses a sense of certainty and help them better prepare for the investments they may make in the near and long term.”

Suppose drink maker AcmeBrewX Ltd needs to invest in a forklift at its warehouse. The new system costs £12,000 and the company has taxable profits. Under FE AcmeBrewX would deduct the £12,000 from its profits, reducing its tax liability by £3,000. Under FE effectively for every £1 accounted in this way, a business’ tax bill reduces by 25p.

While the government doesn’t provide an exhaustive list of what counts as qualifying equipment - referred to as plant and machinery – it does provide some examples, and lists:

• 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 tractors, lorries and vans,
• office equipment such as chairs and desks,
• and, some fixtures such as kitchen and bathroom fittings

Note that the relevant legislation here, the Capital Allowances Act 2001 does not attempt to define ‘plant’ or ‘machinery’, and there are intricate principles involving case law that complicate the issue.

Under current legislation, FE only applies to expenditure incurred until 31 March 2026. On 22 November 2023, the UK Government announced that it intends to change the existing legislation to make FE permanent – although these proposals will need to be voted on in parliament.

Ian Isaac says: “In most cases businesses should consult the services of a tax advisor to provide some guidance and peace of mind.”