The current position
Full expensing is a valuable relief which enables companies to claim a 100% first year allowance on the cost of qualifying plant and machinery. For companies that pay the full rate of corporation tax, this reduces the cost of plant and machinery by 25% in the year in which it is purchased.
Unfortunately, the allowance is only available to companies that acquire plant and machinery for their own use and doesn’t apply to companies that acquire assets and then lease them out.
Construction groups often structure themselves so that valuable plant and machinery is held separately from the company that carries out the construction work. This helps to mitigate commercial risk as the ownership of the plant and machinery is separated from the riskier construction activities. Typically, the construction company will instead pay the plant owning company a fee for using the equipment. Whilst this structure makes good commercial sense, it usually precludes the plant owning company from being eligible for full expensing because it is effectively leasing the equipment to the construction company. The fact that the two companies may be in the same group and under common control is irrelevant.
Companies that hire plant to a separate construction company will be eligible for full expensing if the plant is supplied together with someone to operate it. This is because the supply of equipment with an operator is deemed to be the supply of a service and not the mere leasing of plant. Groups that have structured themselves so that plant is held in a separate company should ensure that anyone who operates the plant is employed by the plant owning company and that the machinery is only supplied to the construction company with the relevant operator as part of a complete supply.
A change on the horizon?
In his 2024 Spring Budget the Conservative Chancellor of the Exchequer, Jeremy Hunt announced that the Government would publish draft legislation with a view to extending full expending for leased assets when fiscal conditions allow. Following the change in Government, it has been confirmed that the rules will be extended to leased assets, when fiscal conditions allow.
Until such time as new legislation comes into force, construction groups buying new plant and machinery should carefully consider how it will be owned and used in order to ensure full expensing is available.
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