Are your capital allowances claims under scrutiny?

HMRC enquiries are increasingly targeting companies that meet two criteria:

• they have made claims under Full Expensing
• their SIC code suggests leasing or equipment hire activity

The concern from HMRC is straightforward. Capital expenditure on plant and machinery used for leasing does not qualify for Full Expensing. As a result, they believe some claims have been made incorrectly.

In more clear-cut leasing businesses, the position is relatively simple. However, many businesses do not fall neatly into that category.

The difficulty is in how “leasing” is interpreted in practice.

In some cases, plant, vehicles or equipment are provided to customers as part of a broader service offering. This could include situations where equipment is integral to delivering a contract, rather than being hired out on a standalone basis.

In these scenarios, the line between leasing and service provision is not always obvious. That distinction is critical, as it directly affects whether Full Expensing is available.

This is where we are seeing the greatest level of HMRC challenge.

An HMRC enquiry can be time-consuming and, in some cases, costly. If errors are identified during a review, penalties can apply, particularly where HMRC considers that reasonable care has not been taken.

By contrast, where businesses identify and disclose issues proactively, HMRC generally takes a more measured approach.

Taking time now to review recent claims can reduce the risk of a more formal challenge later.

If you have claimed Full Expensing, it is worth stepping back and reviewing:

• how your business activities would be viewed from an HMRC perspective
• whether any element of your offering could be interpreted as leasing
• how clearly your contracts and documentation support your position

Often, the answer is not black and white. A review can help clarify whether your current treatment is appropriate or whether adjustments may be needed.

We have extensive experience advising on the interaction between Full Expensing and leasing restrictions, particularly in cases where the position is less clear-cut.

If you would like to sense-check your claims, or review your position in light of HMRC’s current approach, please contact Stephen Martin, Tax Partner, or your usual Old Mill adviser.

A short review now can provide clarity and help avoid unnecessary risk later.