Guidance

Terms of Reference: HMT-HMRC Capital Allowances and Leasing working group

Updated 30 January 2024

1. Objective

To review the existing exclusion of expenditure on plant and machinery for leasing from full expensing (100% First Year Allowance for main rate assets) and the 50% First Year Allowance for special rate assets, with a view to identifying a solution that supports the leasing sector to access the benefits of full expensing, whilst managing the risks of abuse and error. 

To work towards the government’s intention, stated at Autumn Statement 2023, to publish draft legislation on this issue for consultation in due course.

2. Scope

The working group will consider options for the treatment of plant and machinery for leasing in respect of the introduction of full expensing (100% First Year Allowance for main rate assets; and 50% First Year Allowance for special rate assets). In particular, the group will focus on the question of whether full expensing could be made available to expenditure on plant and machinery for leasing where the lessor is treated as the owner of the asset for capital allowances purposes.

Whilst HMT and HMRC are always open to receiving evidence from businesses on their experience of the tax system, substantive reform of the capital allowances system and other policy levers outside the capital allowances system are not being considered as part of this process. The focus of this working group is on the leasing exclusion as it applies to full expensing, however we are open to receiving evidence about the leasing exclusion as it relates to other FYAs.

3. Approach

The working group will meet on an approximately monthly basis, with chairing responsibility alternating between HMRC and HMT.

The work undertaken by the group will help to inform the policy development by officials and the advice provided to HM Treasury ministers. The final decision on any adjustments to the existing exclusion is for the Chancellor, in line with the normal tax policy making process.

4. Criteria for a solution

Any solution must:

1. Minimise risk from tax motivated leasing arrangements and minimise likelihood of error;
2. Fulfil the wider policy objectives of HMT ministers, including – but not limited to – simplification, reducing distortions, minimising error and fraud, and increasing overall business investment;
3. Fit within certain fiscal constraints; and,
4. Be workable for both businesses and HMRC.

5. Participant guidelines

The working group is intended to provide an open forum for discussion between HMG and interested stakeholders across the leasing and professional services industries. These discussions may include draft proposals. These proposals, as well as comments by HMT or HMRC officials, do not represent official government policy.

The detailed contents of any discussions should not be shared with individuals outside the working group. Attendees may wish to keep key stakeholders or association members informed of developments and may seek views from them to inform the working group discussions. Updates should be shared on a need-to-know basis only, and it should be made clear that the contents of these discussions are not a statement of official government policy, and the decision to include leasing remains a decision for Chancellor.

6. Points of contact

If there are any questions on aspects of the working group or this document, please get in touch with LeasingWorkingGroup@HMTreasury.gov.uk.