This means the relief is not available for leasing and short-term hire agreements.

As such, the Finance & Leasing Association (FLA) and the British Vehicle Rental and Leasing Association (BVRLA) have suggested amending the super-deduction to include these agreements. In letters to government ministers, the two trade associations explained:

• Many businesses are unable to afford large capital expenditures following the pandemic. This makes leasing and short-term hire potential alternatives to acquire new equipment;
• These agreements also make good business sense for many organisations who will only use the equipment for limited periods;
• Therefore, including leasing and plant hire in the super-deduction would benefit a broader range of businesses and stimulate growth across all sectors.

Stephen Haddrill (pictured above), director general of the FLA, said: “The government’s decision to restrict the scope of the super deduction amounts to a serious missed opportunity to boost investment. The idea that businesses grow and become more productive by buying plant and machinery outright is outdated.

“Leasing preserves cash in the business and can avoid having expensive equipment that stands idle. 70% of construction plant and machinery is hired in for specific periods for this reason. Government support needs to be designed around the way business is actually done not around the way HMRC still thinks it is done.”

Gerry Keaney, chief executive of the BVRLA, added: “The government understands the important role that the vehicle leasing sector plays in delivering the UK’s road transport de-carbonisation goals. This makes it all the more disappointing that leased vehicles have been omitted from the eligibility criteria of super deduction.

“This is a huge oversight, and an example of where the government has failed to align its fiscal and environmental policies. An increasing number of individuals and businesses are turning to the leasing sector for cleaner vehicles, but the sector has not been immune to the impact of the pandemic.

“With Clean Air Zones popping up around the UK, this is the perfect time to incentivise the uptake of low- and zero-emission vehicles and leasing enables businesses to keep their cash to help get them through the recovery period.

“Making leased vehicles eligible for super-deduction would provide a boost to many businesses and would be a welcome shot in the arm for fleets.”

A bold investment plan threatened by out-of-date rules

When detailing the plan for a super deduction, the Chancellor explained: “Under the existing rules, a construction firm buying £10 million of new equipment could reduce their taxable income, in the year they invest, by just £2.6 million. With the super deduction, they can now reduce it by £13 million.”

Paul Jennings, managing director of JCB Finance, said: “The problem with the super-deduction is that previous legislation and thinking (tracking back to the 80’s) assumes that tax allowances should be aimed at:

• Providing an incentive for businesses to purchase new plant and machinery and bring those assets into long term productive use in their business and the economy;
• Plant and machinery for leasing are excluded because the company entitled to the allowances is not the company who brings the assets into productive use.

“From this, it’s evident that despite the profound change to the methods of acquiring assets, the legislation hasn’t kept pace. For example, how can this legislation cope with subscription models, outsourcing or even contract hire agreements?

“The problem with the Chancellor’s example is that construction firms do not generally own plant fleets anymore. Instead, they hire in machinery according to their changing needs. It is within the leasing space that productive investment takes place and it is construction firms who put these assets into productive use. Using the existing rules and thinking, means that in most circumstances neither plant hire nor construction firms can use the super-deduction.”

Jennings concluded that this out-of-date thinking should not be allowed to constrain the Chancellor’s initiative. He said: “I hope the genuine case for change is accepted and the super-deduction is allowed to act as the Chancellor’s intended investment incentive for British construction and manufacturing and a wide range of other sectors.”