The Chancellor has made permanent a tax incentive for businesses engaging in plant and machinery investments while keeping the possibility of incorporating leasing in future updates.
Jeremy Hunt has declared the full expensing policy as the “largest business tax cut in modern British history” during his Autumn Statement to MPs in the House of Commons.
The tax break, aimed at encouraging businesses to invest in plant and machinery (as well as trucks and vans), will now be a permanent fixture, offering companies ongoing incentives for their investments.
Under the policy, businesses stand to receive up to 25p off their tax bill for every £1 invested, amounting to a tax cut exceeding £10 billion annually, according to the Treasury. The Office for Budget Responsibility (OBR) predicts a substantial boost of approximately £3 billion yearly in business investment.
This permanent change means that items such as forklifts, tools, computers, vans, trucks, and tractors can now be fully expensed against taxable profits.
However, cars remain exempt from the scheme, as do vehicles intended for leasing. This exclusion implies that leasing companies cannot leverage the tax cut, and subsequently, customers won’t benefit from any associated savings.
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In parallel with the policy implementation, HM Treasury and HMRC have initiated a full expensing technical consultation. This aims to explore whether broader changes could be introduced to simplify the existing capital allowances legislation, particularly focusing on the Capital Allowances Act 2001.
The opposition Labour Party has expressed support for the move.
Stephen Haddrill, Director General of the Finance & Leasing Association, welcomed the decision and advocated for the inclusion of leasing in the regime. He said: “We also made the case for leasing to be included in the regime. The Government has agreed to publish a technical consultation to seek further input from stakeholders. This is a positive move. Full expensing without leasing does not give firms access to the full range of finance options at the point when they need to be choosing the most effective and efficient option for their circumstances and investment objectives.”
Ed Rimmer, CEO of Time Finance, acknowledged the significance of the tax relief package but highlighted that working capital remains a challenge for many businesses.
“For businesses, this is very welcome news, but tax is not the only barrier for businesses looking to invest. There are many businesses that simply don’t have the working capital to invest in growth.
“The Chancellor suggests that this business tax cut will prevent the need for borrowing, which simply isn’t realistic for businesses, many of which are still battling high overheads. If the Chancellor wants businesses to grow, increase productivity and contribute to GDP, he must recognise that borrowing to invest is a viable business strategy, albeit one that will certainly be boosted by this tax relief package.”
Rain Newton-Smith, CEO of the Confederation of British Industry, praised the tax break, stating that it would help businesses unleash pent-up investment.