Government urged to look at super-deduction for leasing

Government urged to look at super-deduction for leasing

Posted by

Kevin Blackmore

April 2021

The Government is being asked to look again at the rules governing the new super-deduction capital allowance, announced in last month’s Budget, and extend it to include vehicle leasing and plant hire.

The Finance and Leasing Association (FLA) and the British Vehicle Rental and Leasing Association (BVRLA) have submitted a joint plea to Government asking for the measure to be expanded.

HMRC recently confirmed that the new super-deduction capital allowance could be applied to fleets wishing to invest in new vans and trucks provided that ownership passes to the buyer, signalling a possible surge in new van and truck orders.

However, HMRC also said at the time that the 130% super-deduction capital allowance will not be available for company cars or leasing, although it can apply to charging infrastructure.

Its terms allow companies investing in qualifying new plant and machinery, for a two-year period from April 1 this year to March 31, 2023, to claim a 130% super-deduction capital allowance against the cost of the asset acquired.

This ‘super-deduction’, says the Treasury, will allow companies to cut their tax bill by up to 25p for every £1 they invest.

Calls for scope to be widened

Now, the two trade associations have combined to urge for the scope of the super-deduction to be widened.

They say that at a time when some businesses can ill-afford to make large capital expenditures, leasing or short-term hire are “particularly attractive routes” to acquiring newer and more productive plant and machinery.

For others, these options make good business sense because the assets will only be used for limited periods or need to be updated regularly.

They claim that expanding the scope of the super-deduction to include leasing and plant hire would benefit a much broader range of businesses and stimulate growth across all sectors, which is what the recovery requires.

Stephen Haddrill, 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“The idea that businesses grow and become more productive by buying plant and machinery outright is outdated.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 and hire make far more sense.

“It 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 that considering the Government understands the role that the vehicle leasing sector plays in delivering the UK’s road transport decarbonisation goals, it made it all the more disappointing that leased vehicles have been omitted from the eligibility criteria.

“This is a huge oversight, and an example of where the Government has failed to align its fiscal and environmental policies,” he said.

“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 Covid 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.”

Electric vans

Some companies are expected to look on the new capital allowance as the ideal opportunity to renew their van fleets at a time when high demands are being made on delivery and service fleets during the pandemic.

With rising numbers of new electric vans arriving on the market, it may also be seen as the perfect catalyst to make the jump to an all-electric van fleet. See our recent article where we discuss if electric vans are the key to transforming fleets.

These vehicles are typically more expensive than petrol and diesel counterparts but, thanks to the super-deduction, the cost of acquisition could suddenly become more realistic and within reach for more buyers.

For most business equipment, the super-deduction allows the deduction of 130% of the expenditure incurred. This means that on a spend of £100,000, for example, the deduction against corporation tax will be £130,000, giving corporation tax relief at 19 % on £130,000 or £24,700.

Normally such expenditure would either fall within a company’s annual investment allowance and produce relief of only £19,000 or alternatively be tax-relieved at the main rate writing down allowance of 18%.


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