Take Advantage of Full Expensing

In his spring budget Chancellor Jeremy Hunt announced plans to replace the super tax reduction rate with full capital expensing for IT and plant equipment and machinery. So what does this mean for pharmacy and how can you take advantage of the new benefit? Our Sales and Marketing Director, Louise Laban, takes a closer look.

One thing is clear from the Chancellor’s budget statement last week, the Government is keen to encourage businesses to invest. For pharmacies looking to automate there has never been a better time. For the past couple of years companies investing in specific equipment had been able to claim a 130% super deduction and that was scheduled to finish at the end of this month.

As a relatively new company, the majority of our existing customers had taken advantage of the super tax deduction scheme when investing in our FLOWRx hub and spoke technology as it qualified for the reduction. Up until recently we had been encouraging other pharmacies to follow suit and not miss out on the generous benefit available to them.

However, it now appears that pharmacies considering investing in pharmacy hub and spoke technology will still be eligible for a reduction under the government’s new full expensing scheme. Under full expensing, for every £1 a company invests, their taxes are cut by up to 25p. It works by letting the tax payer deduct 100% of the cost of IT equipment, plant and machinery from their profits before tax in the year it is incurred. It means companies, including pharmacies, can deduct 100% of the costs from their profits straight away, rather than more slowly over the life of the asset. The scheme comes into effect on April 1 this year and is currently scheduled to run to March 31, 2026, although the Government did hint that it was looking to make the scheme permanent as soon as possible. This deduction can only be claimed by companies that are subject to corporation tax. Unincorporated businesses, cannot claim full expensing but can claim the AIA (Annual Investment Allowance) which offers similar benefits for investments up to £1 million per year.

So what does this mean for pharmacy? All our FLOWRx pharmacy hardware was eligible for the super tax deduction scheme and based on the guidelines released so far we believe it will also be covered by the full expensing for plant and machinery. This essentially means any physical assets, excluding land, buildings and structures, used in the day-to-day operations of a business. In addition a 50% first year allowance will allow taxpayers to deduct 50% of the cost of special rate assets during the year of purchase, this includes long life assets including things like electrical systems or solar panels. Further guidance on what is classed as “main rate” and what is classed as “special rate” can be found on the Government website.

An example given by HMRC as to how the new scheme works is as follows:

A business spends a significant amount of money on a modern production line, which includes £10 million on different pieces of machinery. The company also invests £2 million in a new electrical system, which is considered a special rate expense.

The business can claim £10 million as an expense and £1 million as a first-year allowance, which is 50% of the total expense. The remaining balance of £1 million can be added to the special expense pool in the future.

If you are considering automation then this latest announcement means now is the time to buy. Always seek advice from your accountant before making a commitment to ensure it will be eligible for the tax relief, however my advice would be to start discussions with suppliers now.

Information in this blog has been taken from the Government website. You can read full details on the scheme on that website,