The Finance & Leasing Association (FLA) has made the appeal to Gordon Brown in its submission ahead of the Budget on March 21.
The FLA says its view echoes that of the Treasury’s that the restriction has no economic rationale.
The FLA is urging Mr Brown to open the SME capital allowances regime to leased assets given that it would encourage more high quality investment, especially but not exclusively among early stage high technology businesses. In addition, it would address a neglected aspect of the ‘financing gap’ debate by making more asset finance available to firms that often find it difficult to get finance on appropriate terms in the volumes desired because of lack of a track record, high insolvency rates and being in high risk sectors. These firms are also much keener, very often, on asset and loan finance than on surrendering equity.
Martin Hall, FLA director general, said: ‘SME finance has fallen steadily from 58% of FLA members’ asset finance business in 1999 to 45% in 2005, suggesting the current tax relief is biasing SME financing decisions in favour of buying. This means they lose the benefits of external finance, not least the incentive to renew capital stocks regularly when commercial circumstances change. The tax system, should, we believe, leave such decisions to the firm, not introduce a bias.’
FLA also called for an assurance from the Chancellor that no further radical changes to the leasing taxation regime would be planned in 2007 following the introduction of the new regime in the 2006 Finance Act.