This article was first published in the March issue of Fleet News.
Fleet operators buying vans and trucks will benefit from a new tax break announced in the budget, HMRC has confirmed.
However, tax officials could not guarantee that the charging infrastructure installed on business premises for electric vehicles (EV) is also qualified.
The government says companies that invest in qualifying new machinery and equipment from April 1, 2021 through March 31, 2023 can apply for a 130% capital withholding fee or 50% first year expense allowance (FYA) for qualifying special rate assets .
Expenses that are eligible for the super deduction would normally have been relieved with the main surcharge of 18%, while the special surcharge was 6%.
The super deduction, according to the Treasury Department, enables companies to cut their tax burden by up to 25p for every pound invested.
“We have to unlock this investment. We need an investment-related recovery, ”said Rishi Sunak
Rishi Sunak, Chancellor of the Exchequer, delivered the 2021 budget last month, telling MPs, “If companies invest over the next two years, they will not be able to cut their taxable profits by just part of the cost of that investment, as they are or are doing now even at 100% of their cost – the so-called full cost that some have been asking for. With the super deduction, you can now reduce your taxable profit by 130% of the costs. “
For example, under current regulations, a construction company that purchases £ 10 million worth of new equipment could reduce its taxable income by as little as £ 2.6 million in the year it invests.
With the super deduction, they can now cut it down by £ 13 million. The Budgetary Responsibility Office (OBR) believes it could increase business investment by 10%. around £ 20 billion more per year.
“While many companies are struggling, others have accumulated significant cash reserves,” Sunak said. “We have to unlock this investment. We need an investment-related recovery. “
The definition of machinery and equipment on some points requires further clarification by the tax officials, but with regard to investing in vehicles, they were clear.
An HMRC spokesman told Fleet News: “Heavy and light commercial vehicles can qualify for supered-duction if they meet the conditions (e.g. new and unused).”
However, company cars are not treated as main pool equipment and machinery for capital facilitation purposes, so they are not eligible for these facilities.
For companies that invest in the charging infrastructure for electric vehicles in the workplace, the qualifications were not so clear. The HMRC stated that it would be a case-by-case decision for the time being.
Investments in electric vehicle chargers and costs directly related to their installation currently qualify for 100% FYA, which is expected to last through March 31, 2023.
If these expenses qualify as machines and systems, the increase of 30 percentage points will be welcomed by many fleets that are improving their energy and EV charging infrastructure in order to cope with the increasing proportion of plug-in vehicles operated.
The HMRC spokesman stated: “If the charging infrastructure for electric vehicles is machines or systems, a critical check must be made as to whether the expenses are main or special tariff expenses.”
Only major rate issues can qualify for the 130% super deduction, while special rate issues can qualify for the new FYA at 50% special rate.
“In general, integral features of buildings and structures, as well as durable assets, are a bargain,” he said. “Electrical systems are included in the definition of integral features, so this must be taken into account based on the particular facts of the individual case, whether the charging infrastructure for electric vehicles is an integral part of a structure or a building.”
Paul Hollick, chairman of the Association of Fleet Professionals (AFP), told the News at 10 webinars held each month by Fleet News that the super deduction could be applied to charging stations for electric vehicles in the workplace and also for homes funded by the company Chargers, although AFP was waiting for HMRC to check that they included the cost of installing the kit.
Tom Callow, director of Insight and External Affairs at BP Pulse, told Fleet News that while companies have benefited from 100% FYA for EV charging spending for several years, the new 130% super deduction could provide “even more” benefits for businesses, provided their respective purchases at the charging stations are qualified. “
Adam Hall, director of electric vehicles at Drax, also believes the new facilitation would make up-front investments in charging infrastructure for electric vehicles more attractive.
“Combined with other government grants and subsidies, this gives businesses and fleet operators a strong incentive to switch their fleets to electricity sooner rather than later,” he said.
James McKemey, Head of Insights at Pod Point, agreed, adding that “Companies need to be profitable to generate corporate income tax invoices, and not all but for those who do, it can be a powerful incentive with providing of charging infrastructure. “
The story of the capital relief was that by 2008, if there was an expense in the machinery and equipment that you traded in, it qualified for the capital relief, but if it was only part of the building it didn’t. That changed in 2008 and electrical systems were classified as a special rate and would have qualified for the 6% tax break.
Nigel May, tax partner at MHA MacIntyre Hudson, stated, “We at HMRC are trying to find out whether they will accept DC charging stations as machines and equipment.
“Under the pre-2008 rules, they would, but they’re still an electrical system, so we’re waiting for a response from Revenue on that.
“For example, if you set up a fresh power supply to make your EV charger work, is that seen differently from upgrading your existing power supply? The devil is in the details. “
Electrical systems are defined by the HMRC as a system with which electrical energy is received and distributed in the building or structure. The problem is that an EV charging point is a distribution point, May says.
Callow added that it is important for fleet and procurement managers to consider all EV charge incentives available to them and their employees, and “not just those allowances.”
Read more about the budget from AFP Chairman Paul Hollick.