The Chancellor’s decision to make full expensing for business investment permanent is a welcomed initiative that will no doubt boost investment and growth in the UK economy.
However, as with its predecessor, the super-deduction allowance, he has missed a trick by not including assets purchased for leasing purposes within the scheme.
Organisations that provide leased assets, such as plant hire firms, play a vital role, supplying essential equipment to a wide range of industries, including construction, manufacturing and infrastructure, amongst others.
They are a major facilitator of economic growth; many businesses don’t want expensive, depreciating assets sitting on their balance sheets, or don’t have the cash to buy assets outright. Leasing provides a convenient and cost-effective way for them to obtain the assets they require for a specific job or project.
Enabling these firms to lease the latest, greenest technologies ultimately improves their productivity and efficiency, creates safer working conditions for employees and drives the overall competitiveness of the UK economy.
To recap, full expensing enables businesses to claim a 100% deduction for qualifying plant and machinery investments. This means that businesses will not have to pay tax on the full cost of their investments until they are sold or disposed of.
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Excluding leased assets from the scheme makes little sense – it is a missed opportunity that places those businesses that provide these assets at a disadvantage.
Putting it bluntly, providing leased assets is capital-intensive; the assets are expensive and they require significant investment for plant hire firms in order to acquire and maintain their fleets of equipment.
The full expensing scheme would have allowed them to deduct the cost of investment from their tax bill, just as the direct users are able to when they invest. This would drive investment appetite, free up capital for other purposes and improve cashflow.
Second, these businesses, such as plant hire companies, are often small and medium-sized enterprises, the backbone of the UK economy, and not multi-national businesses. They serve the local markets in which they operate, often focusing on specialist sectors. The full expensing scheme would provide a much-needed boost to these businesses, helping them to grow and create jobs.
Third, the companies that provide leased assets are playing an increasingly important role in the transition to a low-carbon economy. They are investing in new technologies, such as electric and hybrid plants, which will help to reduce emissions and improve air quality. The full expensing scheme would provide them with the financial resources to accelerate this transition.
In my role as Managing Director of SME Lending at Paragon Bank, I meet many businesses and a common complaint of theirs has been the uneven playing field of tax investment incentives.
In my position as chair of the FLA, I also know it’s an issue that the wider asset finance community feels passionately about, and the association will continue to lobby for schemes that will generate investment beyond the larger SMEs and corporates.
We will make this point firmly to the Government in our discussions with them. As we strive for economic growth, all sectors of the economy should benefit from positive fiscal policy. Implementing an uneven tax environment simply creates confusion and stifles investment.