"Bringing on back the Good Times"

“Bringing on back the Good Times”

Part of the UK Budget statement last week brought back fond memories for me and, probably, for any other Brit who was involved in the leasing business prior to 1984 (yes, that is close to 40 years ago).

In his Budget statement, the Chancellor of the Exchequer announced changes to the UK corporation tax rules, of which the most commented upon, in the national press, was an increase in Corporation Tax from 19% to 25% (boo, sucks etc. etc.)

However, if you dig a bit deeper than the headline, another change being introduced was the reintroduction of 100% First Year Allowance (“FYA”) on expense on machinery bought for business purposes. Basically, 100% of the cost of machinery bought for business purposes can be offset against tax charges in the same year. 

Currently, UK companies can offset 25% FYA of such expense against tax charges with a trailing 25% tax allowance on the reducing balance over subsequent years. That is not a particularly enticing draw for the leasing world.

Evidence of the leasing of transport assets goes way back to chariots during Roman Empire days. My introduction to the leasing industry was not quite as long ago but still longer than most people reading this blog will recall. It was back in the 1970s. The industry was not the mega star it is today but its initial growth in the UK was mainly down to financial entities recognising the tax benefit of buying machinery (computers, trucks, ships etc. and a few aircraft), keeping ownership, leasing said machinery out to other companies (who actually used it in their business operations), collecting the monthly rentals and using the 100% tax allowances for the benefit of their own business.  

Sadly, for UK based lessors, the incumbent government in 1984 ended the 100% FYA and introduced the far less attractive 25% FYA. Within a year, the relatively small merchant bank for whom I worked, pulled out of asset leasing and I subsequently moved into the aviation industry sector.

So, now that the UK is back to 100% FYA, is this an opportunity to look again at the UK becoming a serious aircraft leasing hub?

As ever, the Budget Statement only presents the highlights of changes and, as the old saying goes, “the devil is in the detail”.

It’s time to look at the small print. More to follow!

Mike Skinner

Arundel Aviation Limited