Funding the real economy and the capital allowances regime


FLA business finance members fund the equipment and services that firms need to deliver value to their customers. Their contribution is well documented, and is referred to as funding the ‘real economy’ to distinguish this part of financial services from the world of derivative swaps and trading in financial assets. 

Understandably, part of the driver for firms’ decisions about when to acquire an asset and how to fund it are the incentives created by the level of corporation tax and the capital allowances regime.

When the Chancellor of the Exchequer announced the introduction of full expensing, a guarded cheer went up at the FLA offices. We had proposed this last year as a way of rationalising the capital allowances regime: it would give business certainty, simplicity and could be a way to include leasing. As ever, ‘the Devil is in the detail’.

Leasing was excluded, with some technical caveats, but the Government has committed to working with us and other interested parties to find a way to include it. Cue another guarded cheer.

It’s important to have a regime that allows customers to choose the right finance for funding equipment, regardless of the capital allowance. The aim is to have a solution by autumn this year.

While we do that, we are also examining the capital allowance regime to identity areas for further simplification. We want a clear and simple system that encourages growth and will be putting forward our ideas to the Chancellor in the coming months.  

Published 24 May 2023

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