The CPA failed in efforts to retain the tax rebate for diesel in the construction industry – the use of red diesel was banned in construction on 1st April 2022 – but hopes for more luck with its latest lobbying effort.
Red diesel was banned not just to save the Treasury money but also to wean the construction industry off fossil fuels. However, those that have switched to hydrotreated vegetable oil (HVO) instead are actually paying more for their fuel than they would if they still used DERV diesel. HVO is taxed at the same rate and is more expensive.
CPA chief executive Kevin Minton has written to the chancellor to ask if he might give a rebate for HVO for the construction sector. This would further incentives companies to move away from fossil fuel powered construction plant, the CPA suggests.
“The rebate for HVO should be temporarily reintroduced to the construction sector, to help companies offset the price rises witnessed over the course of the last 12 months, while simultaneously incentivising companies to move away from diesel powered construction plant,” he writes.
“As a fuel which the Treasury classifies as a heavy duty oil, it is widely acknowledged that HVO is seen largely, as an interim fuel that is largely a stopgap between the development of diesel fuels and the move towards low carbon powered construction plant. This should not act as an excuse to penalise companies who are trying to do the right thing by using HVO as part of a strategy to lower emissions, improve air quality and limit their impact on the environment.
“Losing the rebate has pushed up costs on a fuel which is already limited in supply due to the costs involved in its production and the need for sustainable sources. With more and more plant-hire companies looking to move away from diesel, a temporary reintroduction of the rebate for HVO will help alleviate some of these costs and encourage more firms to move away from diesel – a stated government policy.”
Mr Minton also asked Jeremy Hunt to use the spring budget next month (set for 15th March) for other tax breaks for his members.
The super deduction allowance (SDA) introduced by Rishi Sunak when he was chancellor to promote investment in machinery is due to expire at the end of March. It never had the impact on construction that was initially anticipated because it only extended to machinery buyers who were using the machinery themselves, not to hire or leasing companies.
“We urge the Treasury to introduce a replacement that includes the plant-hire industry,” Mr Minton writes. “Encouraging and incentivising businesses to invest will be key to avoiding a prolonged recession.”
He explains: “Under existing legislation within the SDA, plant-hire companies were excluded from claiming the SDA. This came from a belief within the Treasury that 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 was a fundamental mistake for which our members have been paying for ever since. We have provided HMRC and the Treasury with guidance on how to differentiate between hire and lease, and continue to offer support in this area.
“If we are to boost business investment, then the replacement for the SDA must include the construction plant-hire sector – failure to do so unfairly penalises our members and limits their ability to invest in new greener, cleaner technologies and equipment. It will also hinder efforts to meet the government’s own targets for the end of diesel powered machinery – directly working against stated government policy.”
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