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Press release
15 Mar 2023
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London, GB
EY Budget commentary: A super deduction, but not as we know it
Chris Sanger, EY’s Head of Tax Policy, comments on the Chancellor’s Spring Budget
“The star of the Chancellor’s “E for Enterprise” was the immediate capital expensing for those businesses spending over £1m per annum on investment on new plant and machinery, costing over £10bn in 2024/25. This maintains the targeting of the super deduction, so will not be available to those buying second-hand equipment. It also applies at a rate of 50% to long life assets and various other assets.
“Notwithstanding these constraints, giving £25 back for every £100 spent, is still expected to encourage greater investment, even if in reality it only represents a cashflow benefit. In practice, this represents a very slightly larger cash flow benefit than the super-deduction (which was £24.7 for every £100 spent), since it applies to a corporation tax rate of 25% not 19%.
“The Office for Budget Responsibility estimates that this will boost annual business investment by almost 3.5% at the peak. Invest now, pay later, seems to be the Chancellor’s ethos here.
“Whether this level of additional investment is achieved may depend on how confident business is that the Chancellor can make it a permanent measure. He vowed to do so if it can be afforded. Limiting the relief to just three years helps the Chancellor to balance his books and actually generates extra tax receipts in 2027/28 as the timing effect reverses, but it doesn’t help businesses with investments that have long lead times. Given that the Annual Investment Allowance already deals with projects below £1m, many of the target projects may well fall into this category. To get those businesses investing, the Chancellor may need to follow up on today’s announcement, but the sooner the better if he is to drive the greatest levels of investment.”
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