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Our client is a plant hirer, supplying large items of plant to the building industry. All new plant is hired out with an operator. We have claimed first year allowances on such plant on the grounds that a service (i.e. plant and operator combined) is being provided to customers.
Our client is a plant hirer, supplying large items of plant to the building industry. All new plant is hired out with an operator. We have claimed first year allowances on such plant on the grounds that a service (i.e. plant and operator combined) is being provided to customers.
The Inland Revenue says that, in its view, first year allowances are not available where the operator is under the control and direction of the customer, but that where the customer contracts to undertake a specific task, e.g. dig up a mile of road, this would amount to a contract of service and first year allowances would as a result be available.
In our case, one of the hire conditions is that the operator is under the control of the customer. This is important for liability purposes in the event of on site accidents, etc. Another hire condition is that the customer is not permitted to use the plant without the operator provided.
It seems to us that the customer would only hire expensive plant for a specific task, but that task would not normally be specified as part of the contract. Anecdotal evidence suggests that the Revenue is being inconsistent with its approach to such cases, and readers thoughts and experiences would be welcome.
(Query T16,002) - Peter the Plant.
Without details of the source and context of the Inland Revenue's comments concerning the circumstances in which a first-year allowance may be allowed, it is difficult to comment on their validity. Similarly, in the absence of further information concerning the anecdotal evidence of different treatment in similar cases, it is hard to reach any solid conclusions as to whether the client is being unfairly treated.
It is therefore necessary to rely on the relevant statutes. It is not immediately clear which accounting period is being considered and therefore one should examine both Capital Allowances Act 1990 and Capital Allowances Act 2001. As there was no change in the effect of the relevant provisions, however, I have chosen to refer only to the 2001 Act, being the clearer of the two.
The availability of first-year allowances is subject to the exclusions in section 46. The relevant exclusion is 'General Exclusion 6' which covers plant and machinery provided for leasing. The following sentence makes it clear that leasing includes the letting of any asset on hire.
To ascertain whether 'Peter the Plant's' client is entitled to a first-year allowance or not, it is therefore necessary to ascertain whether or not the equipment is acquired for hire. 'Peter the Plant' uses both 'hirer' and 'hired' in the opening sentences of the query and later uses 'hire' when referring to the typical agreements made by the client. Whilst not conclusive, this presumably unintentional use of language nevertheless strongly suggests that the equipment is acquired for hiring.
Whilst the equipment is supplied with an operator, the two conditions cited by 'Peter the Plant' both suggest that this provision is merely ancillary to the supply of the equipment. A contrary conclusion would almost certainly have been reached had the operator used the equipment him or herself and independently of the customer.
As a result, it seems that first-year allowances are not available to the client.- Kalonymous.
The problem appears to arise in connection with section 6(2), Capital Allowances Act 2001 (to which all references here relate). This embodies a general exclusion of plant and machinery for leasing, although a trade is a qualifying activity.
From section 19 a distinction is required between hiring out in the course of a trade and special leasing apart from any other qualifying activity. From section 52 a 40 per cent first year allowance is available, although a lower proportion may result under section 205 from a mix of activities.
The mention above of general exclusion 6 requires to be amplified by the supplementary text which says that the letting of any asset on hire is to be regarded as leasing, whether or not it would otherwise be so regarded. This is intended to reflect section 50(2), Capital Allowances Act 1990 which was considered in replies to Query T15,729 in Readers' Forum, 21/28 December 2000 at pages 327 to 328, where the plant hired (scaffolding) was installed but not operated.
It seems repugnant to good sense to suggest that a human being can be hired out like an inanimate object, whatever may be the insurance liabilities and the giving of instructions as to the tasks to be performed. The operator does not become the customer's employee.
This point should be contested, at least up to the date of the Special Commissioners' hearing (if further costs are a worry). - Bear.
