When Rishi Sunak announced last year that until April 2023 purchasers of plant and machinery can claim a 130% capital allowance, it was greatly welcomed across the industry. The super deduction allowance (SDA) was intended to get industry investing in the latest, cleanest equipment and help spur post-Covid economic recovery.
Maybe it worked. Retail sales of mobile construction and earthmoving machinery in the UK reached a new peak in 2021 to 36,200 units – 13% up on pre-Covid 2019 and the best year since the financial crash of 2007/08.
Or maybe the lift in 2021’s numbers was just a rebound from pent up demand and purchases stalled in 2020 and had nothing to do with the SDA at all.
After the initial excitement about the tax break, the construction industry soon learned that the SDA was not all it at first appeared. A few weeks after Rishi Sunak unveiled the SDA, it emerged that only companies that actually themselves use the equipment they purchase are entitled to the SDA. A plant hire company sending out a crane or excavator with an operator – providing a service – qualifies for the SDA. A fleet owner or tool hire shop hiring out a machine without an operator does not qualify. [See The lowdown on… super deductions.]
Given that plant hire is the dominant model in UK construction, the impact of the SDA was not as dramatic as it might have been.
The Construction Plant-hire Association (CPA) has written to Chancellor Rishi Sunak ahead of his forthcoming spring budget statement (set for 23rd March) asking him to widen the scope of the SDA so that plant-hire companies can benefit – and they have asked him to make it permanent.
The CPA has also asked for a delay in the removal of the red diesel rebate “given the current wider global uncertainty and continued volatility on oil prices”.
CPA chief executive Kevin Minton writes in his letter the chancellor: “The CPA has very real concerns about how our members can plan for the future and invest in new technology and equipment while simultaneously dealing with the removal of the red diesel rebate that comes into effect at the beginning of April. Cost pressures within the construction industry continue, alongside the impact of Covid-19 and the ongoing conflict in Ukraine providing greater uncertainty for businesses.”
He writes: “To boost business investment and encourage the uptake of cleaner, greener construction plant, it is vital the construction plant-hire industry can claim the super deduction allowance (SDA). Under the current regulations, plant-hire companies are unable to do so.
“In the budget last year, you rightly identified the need for UK businesses to increase investment to improve productivity and develop new technologies. The SDA was introduced in 2021, scheduled to run for two years. In the budget speech from March 2021, you gave the example of construction plant as one of the technologies that could take advantage of the SDA.
“Yet under existing legislation, plant-hire companies cannot claim the SDA. The Treasury currently believes when construction plant is being hired, it is being leased out to companies – with the owner of the plant not bringing it into productive use. This policy may have been appropriate to prevent leasing companies benefitting from the extra allowance but works against the well-established and efficient construction hire sector. This is a fundamental mistake for which our members are now paying. It also punishes companies who are losing the rebate for red diesel yet cannot claim the SDA to invest in new cleaner, greener construction plant – the exact aim and justification from the Treasury, for removing the rebate.
“The SDA in its existing guise, should be extended with a view to making it permanent
With the continued uncertainty in the wider global economy, businesses need consistency and a degree of confidence if they are to navigate what remains unchartered territory. This state is set to continue for the foreseeable future. The SDA is set to run out over the course of the next 12 months. It is vital the SDA is extended for all businesses, with no set limit on when it is due to expire. This will provide confidence, certainty and broaden the scope and range of companies who are able to claim the SDA – especially those plant-hire companies who are looking to invest in new electric or hydrogen powered plant.”
Got a story? Email news@theconstructionindex.co.uk
