Simon Goldie Director of Business Finance, FLA
In the UK, one in five vans and one in five HGVs is either leased or rented by businesses. For context, that’s probably around 800,000 vans and 100,000 HGVs. In the construction, logistics and transport industries specifically, businesses tend to favour shorter term hire because certain assets may only be needed for short periods of time. Plant hire firms will often acquire their plant and machinery either through hire purchase or leasing due to the very high outright cost of the equipment and the short life of the assets.
These are sectors with specific features or characteristics for which there is a perfect finance solution. And yet, neither the purchaser nor the user of the equipment can benefit from the Government’s super-deduction. This was the measure introduced in April 2021 to extend tax relief to businesses investing in qualifying plant and machinery.
It initially looked like a great scheme, offering businesses an opportunity to benefit from a first-year capital allowance equivalent to 130 per cent of the value of their capital expenditure, but since leased assets or those acquired via short term rentals were not included in the super-deduction plan, entire sectors have been presented with a Hobson’s choice of either using the most efficient type of finance which fitted the asset scenario, or choosing a less efficient type of finance which would let them benefit from the capital allowances.
With mixed reviews on the effectiveness of the super-deduction, and the current version coming to an end in March 2023, what might a properly targeted successor look like? Spoiler alert – it should include leasing and short-term rental!
Here at the Finance & Leasing Association, we’ve joined forces with the British Vehicle Rental and Leasing Association to recommend to the Government a green super-deduction to replace existing allowances for green plant and machinery, such as the 100% first year allowance (FYA) for electric vehicle charging points and electric vans, and the 50% FYA for plant and machinery which supports a business’s energy efficiency.
Simplifying green incentive regimes for businesses, and also building increased productivity into SMEs’ preparations for Net Zero seems like a win-win.
For more information, please visit: www.fla.org.uk