19 Mar 24
News

Major tax change for UK fleets and leasing companies

Major tax change will benefit UK leasing companies

UK fleets are set to benefit from a major accounting change that will level the playing field between the cost of purchasing and leasing commercial vehicles.

The Government has announced plans for new legislation, which will allow leasing companies to offset the entire cost of new light and heavy commercial vehicles against their corporation tax.

Capital allowance

Companies that purchase commercial vehicles are already able to take advantage of a 100% first-year capital allowance, following a Government initiative last year designed to support business investment. The policy, known as full expensing, effectively cuts 25% (the main rate of corporation tax) off the cost of commercial vehicles – for every pound that a company invests, its taxes are reduced by 25p.

But full expensing does not apply to the rental and leasing sectors, which can only claim capital allowances of 18%.

However, in its spring budget for the coming year, the Government said it: “will shortly publish draft legislation for full expensing to apply to leased assets.”

There is no timeline yet for this realignment of tax policy, with the Government simply promising to do so: “as soon as it is affordable.”

Industry reaction

The BVRLA, which represents the UK’s vehicle leasing companies, has been campaigning for the tax change, and said it could unlock up to £1 billion of additional investment in commercial vehicles.

Gerry Keaney, BVRLA Chief Executive, described the extension of full expensing to the rental and leasing sectors as: “a monumental step forward to rectify an historic injustice.” 

Full expensing applies to both vans and heavy commercial vehicles, but not cars.

Caroline Sandall-Mansergh, Consultancy and Channels Development Manager at Alphabet GB, said: “Many companies are turning to leasing versus outright ownership of vehicles as a more cost-effective route for investment, and as a result, these businesses will see significant benefit in tax exemption through full expensing. We hope the Government will provide further clarity on timelines, and that it will continue to work with leaders within the leasing sector to ensure the reformed full expensing policy meets the investment needs of the modern business.”

Image: shutterstock_274127738

Authored by: Jonathan Manning