The proposed extension of full expensing to leased assets

Mary Schofield

Changes to capital allowances rules have for many years been a prominent feature of the annual announcements from the Chancellor, generating endless rate changes and transitional measures. These yoyoing rules and thresholds have made it particularly difficult for businesses to plan tax efficiently for capital expenditure.

The fixing of the annual investment allowance at £1m provided a welcome level of certainty. Last November’s Autumn Statement announced that the full expensing policy was to be made permanent, which was further welcome news for Companies with a significant capex budget.

The 2024 Spring Budget did not attempt to meddle with rates or thresholds, which appears to be the right approach when long term certainty is so important for investment decisions. However, the Chancellor did announce that draft legislation for a technical consultation will be published such that the full expensing rules could potentially be extended to include plant and machinery for leasing. This is potentially very welcome news.

To recap, full expensing is a valuable tax relief, providing a 100% tax write-off for new and unused plant and machinery which would otherwise be allocated to the main pool for capital allowances purposes. As a reminder this relief is not available to unincorporated businesses.

Currently there is an exclusion for leased assets meaning that full expensing is not available for plant and machinery unless it is used by its owner. Therefore, extending full expensing to leased assets would be extremely beneficial to the leasing industry given that the current main rate of corporation tax is 25%.

However, we mustn’t get ahead of ourselves. The Chancellors announcement is no doubt a response to industry pressures, but there is no real timeline on when we might see this change and the suggestions are that changes will be introduced “when fiscal conditions allow”.

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