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20 December 2000
Scaffolding hire
A client company carries out the trade of hiring out scaffolding equipment to many different customers for various lengths of time. The service includes erecting the equipment and dismantling it at the end of the relevant period. There are no lease agreements in existence, but customers pay for the hire of equipment on a daily or weekly basis.
A client company carries out the trade of hiring out scaffolding equipment to many different customers for various lengths of time. The service includes erecting the equipment and dismantling it at the end of the relevant period. There are no lease agreements in existence, but customers pay for the hire of equipment on a daily or weekly basis.
Scaffolding hire
A client company carries out the trade of hiring out scaffolding equipment to many different customers for various lengths of time. The service includes erecting the equipment and dismantling it at the end of the relevant period. There are no lease agreements in existence, but customers pay for the hire of equipment on a daily or weekly basis.
We recently claimed first year allowances in respect of the purchase of the scaffolding equipment. The Inspector of Taxes has now replied that he is not willing to allow first year allowances on this equipment, as section 50(2), Capital Allowances Act 1990 applies, which extends the definition of leasing to include letting an asset on hire.
We have maintained that our client is in the trade of hiring out equipment which includes erecting and dismantling (i.e. not in the leasing business) and therefore first year allowances should be granted as the capital expenditure is in respect of our client's trade. The Inspector is still resisting this argument.
Readers' comments would be welcomed as to how we can justify the claim for first year allowances.
(Query T15,729) – Winner.
The fact is that expenditure on machinery or plant which is then hired out for a qualifying purpose (sections 39 and 40, Capital Allowances Act 1990) means that the trade hiring out the asset will qualify for capital allowances.
However, having looked at section 50(2), Capital Allowances Act 1990 and also at various sections of the Inland Revenue's Capital Allowances Manual in greater detail, I thought why not look at something which is much easier to understand as far as the way it is written – the Tax Law Rewrite Draft Capital Allowances Bill!
Under Part 2, Chapter 2.4.8(2) which deals with general exclusions from first year qualifying expenditure and applying to (in this case) section 2.4.6. expenditure incurred by small or medium-sized enterprises, it states under general exclusion 6:
'The expenditure is on the provision of plant or machinery for leasing (whether in the course of a trade or otherwise).
'For this purpose, the letting of a ship on charter, or of any other asset on hire, is to be regarded as leasing (whether or not it would otherwise be so regarded).'
Therefore first year allowances are not available for expenditure on machinery or plant for hiring and so the Inspector is correct. – N.K.
It is simply not correct to describe the activity conducted by this company as the letting of an asset or assets on hire. The company in question provides a service whereby, for specified periods of time, the customer or his agents are enabled to have access to structures above ground level, usually to permit the carrying out of remedial works.
The provider of the scaffolding equipment is responsible for the safety of the elements of the structure, whose coherence and stability when installed and subsequently in position depends on hundreds and thousands of hand movements applied to small pieces of equipment, with the result that larger pipe-like units are joined together in a manner which accords with sound principles of physical stress. The erection of scaffolding is a skilled occupation, not attempted by jobbing builders who are customers and whose insurance would not cover accidents resulting from untrained usage.
From Statement of Standard Accounting Practice 21 it can be seen that leasing is concerned entirely with the risks and rewards of ownership. The relevant contracts are concerned only with allocating financial responsibilities. A finance lease would involve the transfer of substantially all such aspects and any so-called operating lease differs only in the retention by the lessor of greater financial responsibilities.
Examples could be multiplied but no lessor of automobiles would provide mechanics to service the vehicles, although the leasing contract may specify matters for which the lessor rather than the lessee is required to foot the bill. – Lane.
Editorial note. Readers were equally divided on this query. Another reader suggested that the Inspector (provided with a hard hat) should visit a site when scaffolding is being erected. This may be a point that needs to be tested before the Commissioners.
A client company carries out the trade of hiring out scaffolding equipment to many different customers for various lengths of time. The service includes erecting the equipment and dismantling it at the end of the relevant period. There are no lease agreements in existence, but customers pay for the hire of equipment on a daily or weekly basis.
We recently claimed first year allowances in respect of the purchase of the scaffolding equipment. The Inspector of Taxes has now replied that he is not willing to allow first year allowances on this equipment, as section 50(2), Capital Allowances Act 1990 applies, which extends the definition of leasing to include letting an asset on hire.
We have maintained that our client is in the trade of hiring out equipment which includes erecting and dismantling (i.e. not in the leasing business) and therefore first year allowances should be granted as the capital expenditure is in respect of our client's trade. The Inspector is still resisting this argument.
Readers' comments would be welcomed as to how we can justify the claim for first year allowances.
(Query T15,729) – Winner.
The fact is that expenditure on machinery or plant which is then hired out for a qualifying purpose (sections 39 and 40, Capital Allowances Act 1990) means that the trade hiring out the asset will qualify for capital allowances.
However, having looked at section 50(2), Capital Allowances Act 1990 and also at various sections of the Inland Revenue's Capital Allowances Manual in greater detail, I thought why not look at something which is much easier to understand as far as the way it is written – the Tax Law Rewrite Draft Capital Allowances Bill!
Under Part 2, Chapter 2.4.8(2) which deals with general exclusions from first year qualifying expenditure and applying to (in this case) section 2.4.6. expenditure incurred by small or medium-sized enterprises, it states under general exclusion 6:
'The expenditure is on the provision of plant or machinery for leasing (whether in the course of a trade or otherwise).
'For this purpose, the letting of a ship on charter, or of any other asset on hire, is to be regarded as leasing (whether or not it would otherwise be so regarded).'
Therefore first year allowances are not available for expenditure on machinery or plant for hiring and so the Inspector is correct. – N.K.
It is simply not correct to describe the activity conducted by this company as the letting of an asset or assets on hire. The company in question provides a service whereby, for specified periods of time, the customer or his agents are enabled to have access to structures above ground level, usually to permit the carrying out of remedial works.
The provider of the scaffolding equipment is responsible for the safety of the elements of the structure, whose coherence and stability when installed and subsequently in position depends on hundreds and thousands of hand movements applied to small pieces of equipment, with the result that larger pipe-like units are joined together in a manner which accords with sound principles of physical stress. The erection of scaffolding is a skilled occupation, not attempted by jobbing builders who are customers and whose insurance would not cover accidents resulting from untrained usage.
From Statement of Standard Accounting Practice 21 it can be seen that leasing is concerned entirely with the risks and rewards of ownership. The relevant contracts are concerned only with allocating financial responsibilities. A finance lease would involve the transfer of substantially all such aspects and any so-called operating lease differs only in the retention by the lessor of greater financial responsibilities.
Examples could be multiplied but no lessor of automobiles would provide mechanics to service the vehicles, although the leasing contract may specify matters for which the lessor rather than the lessee is required to foot the bill. – Lane.
Editorial note. Readers were equally divided on this query. Another reader suggested that the Inspector (provided with a hard hat) should visit a site when scaffolding is being erected. This may be a point that needs to be tested before the Commissioners.
