Today’s budget statement brought a temporary boost to capital
allowances (CAs) on new investment in plant and machinery.
However, companies using asset finance facilities will not
benefit in many cases, since leased assets are specifically
excluded.
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Normally annual tax write-offs on plant and machinery start at 20
per cent of the cost in the year of acquisition, with declining
proportions allowed in each subsequent year.
In a move to stimulate investment, the Chancellor announced that
for a period of 12 months from 1st April 2009, there will be a 50
per cent tax write-off or first year allowance (FYA) in the
taxpayer’s current accounting year. However, assets acquired for
leasing will be excluded.
In all cases where the lessors would normally claim CAs, this rule
will discriminate against leasing. That will include most operating
leases, where the lessor takes a significant residual value risk on
the asset, and most other leases for periods up to five years.
Where it is the customer who claims CAs – as with hire purchase,
and “long funding leases” as defined in the 2006 Finance Act – they
will be treated in the same way as owner-users who do not require
asset finance. Therefore they may qualify for the 50 per cent
FYA.
Small companies, however, are already eligible for a 100 per cent
annual investment allowance for the first £50,000 of annual
expenditure for which they can claim CAs. Expenditure within this
limit will not be affected by the temporary
enhancement.
