Tax breaks would boost 'value' of operating leases

Tax breaks that are available to profitable businesses when buying equipment should be extended to those SMEs that take out new operating leases.

The call has come from the Finance and Leasing Association (FLA) after figures revealed that more and more businesses are turning to leasing as a way of preparing for the economic recovery.

According to the FLA, asset finance overall dropped by 39 per cent in the second quarter of the year compared with the same period in 2008.

However, the use of operating leases, excluding cars, rose by 9 per cent.

From April to June, operating leases accounted for almost £1 billion of new equipment, ranging from rolling stock to plant and machinery, from IT to other business items.

Specifically, the value of operating leases for business equipment such as copiers, telecoms, vending and catering equipment, security equipment, medical equipment and office furniture climbed by 42 per cent.

Operating leases for plant and machinery grew by 27 per cent over the same time. The FLA said that the majority of these agreements were arranged with smaller businesses.

The FLA added that it believes the level of investment in operating leases could be doubled if the government extended the tax breaks currently available to profitable businesses that buy equipment to all SMEs that choose the operating lease route instead.

Geraldine Kilkelly, chief economist at the FLA, commented: “The Q2 2009 figures show that, although the asset finance market overall fell by 39 per cent, businesses are using operating leasing to acquire equipment to help them weather the storm.

“Businesses are protecting their funds by investing in new business equipment through operating leases. These leases are popular for smaller businesses because they allow them to update the equipment, usually after 3 to 5 years.”

Ms Kilkelly argued that, as the economy starts to recover, there will be increasing demand for new equipment and that businesses will need immediate access to finance.

She concluded: “The government could help the asset finance industry meet this demand by extending the tax breaks that are available to profitable businesses to less profitable SMEs.”