Full Expensing – An Opportunity for Growth in 2024?

Full expensing was introduced in April in 2023 as a replacement for Super Deduction. Originally intended to come to an end in March 2026 and cover qualifying investments within this period, in the Chancellor’s Autumn Statement the scheme was made permanent. The Spring Statement proposed to extend this scheme to also cover leased assets, allowing businesses to claim the entire cost of leased assets from their tax bill in the first year, rather than over the full term of the lease.

Whilst the economy has remained on a knife edge, the underlying sentiment is that the direction of travel is improving. Inflation has returned to more normalised levels, and most recent voting at the Monetary Policy Committee meeting saw a slight shift towards reducing base rate. An election most certainly is on the horizon. The Government is doubling down on incentives to spur investment, innovation and job creation. The introduction of full expensing and making this a permanent scheme alongside proposing widening its scope reflects a broader effort by Government to stimulate economic growth and encourage investment in key sectors. By incentivising businesses to make capital investments, policymakers aim to drive overall economic expansion and recovery.

What qualifies for full expensing?

Qualifying assets under full expensing typically include new and unused assets necessary for business operations, such as plant & machinery, manufacturing equipment, IT equipment, furnishings, and certain types of vehicles. Cars, some assets used for leasing, and certain other categories are excluded. The scheme also extends to assets purchased under hire purchase or finance lease, with special capital allowance rules. And the Spring Statement proposal could extend that to assets utilised by the business but leased rather than bought. 

Implications for SMEs

What does this mean for SMEs across the UK? It’s simple - opportunity. Full expensing lightens the burden on cashflow and enables businesses to invest in critical assets, enhance their productivity, and fuel growth without the burden of prolonged tax liabilities. It's a mechanism for competitiveness, resilience, and long-term sustainability in an ever-evolving economic landscape.

The opportunity

Finance brokers play a pivotal role in guiding businesses through the intricacies of incentives such as full expensing.  By providing expert guidance, tailoring financing solutions, and highlighting the cost savings, brokers can help businesses capitalise on the benefits of full expensing and unlock new avenues for growth which will only expand their client relationships.  Moreover, brokers access to a wider scope of lenders not readily available to SME customers on a direct basis is crucial to nurture the opportunity for development. It’s also essential to explore potential future implications and to discuss both the potential pros and cons. 

Pros and cons: the fine print

Of course, no policy comes without its quirks. While full expensing offers undeniable benefits - cash flow enhancement, simplified tax planning, stimulus for investment and potential competitive advantage, it’s imperative to address potential pitfalls too. There’s an increased risk of businesses misusing full expensing for tax avoidance purposes or inflating asset costs to maximise deductions.  From increased scrutiny to the need for more meticulous record keeping, asset limitations, potential tax deferrals and clawback on asset disposal - it's about finding the right balance and ensuring clients are well prepared for the road ahead. 

Partnering for success

At Shawbrook, we're not just here to provide finance solutions - we're here to build lasting partnerships and support you every step of the way. Whether it's tailoring bespoke financing options or offering expert guidance, we're committed to helping you and your clients capitalize on opportunities.  

2024 holds immense promise for commercial finance brokers and their SME clients. Full expensing presents brokers with a unique opportunity to add value, drive growth and position themselves as trusted advisors in the eyes of their clients.  Through leveraging their expertise and fostering collaborative relationships with clients and lenders, finance brokers can help SMEs thrive in an ever-changing economic landscape.  By embracing this innovative approach to capital investment, we can utilise a powerful tool for enhancing cash flow and driving innovation with the potential to reshape industries and fuel economic prosperity for years to come.