HMRC internal manual

Capital Allowances Manual

CA23115 - Plant and Machinery Allowance (PMA): First Year Allowance (FYA): distinction between leasing and provision of services

Assets used for leasing and those used in the course of providing a service

There is a distinction between the leasing or hiring of an asset (generally excluded from FYAs, CA23113) and the provision of services that involve the use of an asset. Each case must be decided on its own facts.

In the construction industry, you should accept that plant provided predominantly with an operative is more than mere hire. This means that such plant is not excluded from FYA by the leasing exclusion CA23113.

We changed our view about this after the judgment in the case of Baldwins Industrial Services PLC and Barr Ltd. [2002] EWHC 2915 (TCC). That case considered whether the hire of a crane with an operative constituted a construction operation, and as such amounted to more than mere hire. Baldwins hired a 50 tonne crane to Barr to be used in the building of the new Southampton football stadium. An incident arose which led to a dispute as to which party was responsible for repairs to the crane. An essential element of the claim was whether the provision of the crane and driver was part of a construction contract within the ambit of Housing Grants, Construction and Regeneration Act 1996. A construction contract is one under which construction operations are carried out and it was accepted that a contract for mere plant hire is not a construction contract. The labour element was held to be crucial.

The hire of the crane plus driver was held to be a contract for supply of plant and labour to be used as part of the operation to build the stadium. The contract for supply of the crane and driver was for an operation that formed an integral part of, was preparatory to, or was for rendering complete a work of construction. Following the judgement we accept that the supply of plant or machinery with an operator, by a business, is the provision of a service and not mere hire.

The supply of plant or machinery with an operator means that the operator remains with the equipment during its use and that he or she will operate it alone save for exceptional circumstances. It is not sufficient for the plant or machinery to be delivered or installed by the hire company. For example, the delivery and installation of a generator would not be regarded as the provision of a service but the supply of a digger with driver would be so regarded.

Plant or machinery may be provided with an operator on some occasions and without on others. Where, at the time the expenditure is incurred, it is intended that the asset will be predominantly provided with an operator, the precise facts and use of the asset will have to be considered, but generally we accept that FYAs are due.

We also accept that the provision of building access services by the scaffolding industry amounts to a construction operation and is therefore more than mere hire. This does not apply to businesses that simply supply scaffolding poles etc. for use by others.

Each case must be considered on its own facts. Before this change, the main test was who had control of the asset, the owner or the person hiring the asset.