Capital allowances on a farm
The tax relief available on plant and machinery is currently restricted to £200,000 AIA (increasing to £1million for a 2 year period from the 1st January 2019) and the balance eligible for writing down allowances. The definition of plant is relatively wide and includes all the normal items of expenditure that you would expect – tractors, trailers, foragers, combines, hay turners, rakes, weed cutters, bulk tanks etc.
Some items such as slurry stores, silage clamps, and grain silos for temporary storage of grain are not so obvious and have been included as plant by statute. Others such as sealed climatically controlled plant houses and pig equipment have been specifically looked at and included by the Revenue as plant in business briefings. Moveable sheds are also covered by HMRC Manual CA22110 and the intention to be moved in the course of the trade is a key factor in being treated as plant.
There are, however, grey areas such as:
1. Slatted floors in dairy buildings that allow slurry to seep through the floor into a sealed tank, but which also provide flooring for cows to stand on. Are they part of the slurry store facilities or a shed floor ?
2. Scrape passages in dairy buildings. Are they slurry related channels or shed floor ?
3. Covers over slurry and silage clamps that provide a roof, i.e. possibly a shelter(?) but also stop effluent from entering the waterways and arguably part of the function apparatus itself. Is the cover a freestanding structure capable of being left on its own or attached to the sides of a slurry store or clamp and part of it ?
There are numerous questions as to facts functionality and purpose. Our article from Taxation Magazine dated 18th February, 2010 is still relevant. Statute also generally legislates against buildings qualifying as plant. In the old days of agricultural buildings allowances this didn’t matter as much as it does now. Although, for contracts entered into from the 19th October 2018, a new structures and buildings allowance will apply to commercial buildings with a 2% flat writing down allowance. Motive and main purpose tests are key in looking at some items. If the main purpose is to provide shelter or the setting in which the business is carried on then no relief is available as plant. If the main purpose of the item forms part of the functional apparatus itself then relief may be due.
The recent case of SSE Generations ltd -v- HMRC (TC06618) is the latest to explore some of the angles and is worth a read. Although it dealt with relief due on a hydro power station costing in excess of £300m it is highly relevant to farmers . The case was important for two reasons. The FTT Judge held that you should look at case law first to establish what is plant on a piecemeal approach and then look at statute, and not the other way around. This was important as the Revenue were contesting that statute debarred claiming relief on a building which stopped a piecemeal approach. Secondly the case listed a number of areas that gave clarity on what was plant. The cavern itself in which the main turbines and transformers were located and main access tunnels were held to be part of the setting and shelter and not allowable. However, the concrete in the river itself forming the intake base, all the pipelines, tunnels for cabling, and the concrete/steel structure supporting the turbines themselves were all held to be plant. The above gives us comfort in dealing with slurry systems, silage areas and feed areas. If the expenditure relates to sealing in slurry or effluent or piping it, it should qualify, whereas the structure of a building, sheltering plant will probably not.
Cases where the walls and rooves also qualify as an integrated piece of plant are few and far between and depend on forming a sealed unit for temperature control or protection – glasshouses, and a sealed room around CCTV cameras in a factory were both allowable. A roof and walls around and over a heated swimming pool were held not to qualify even though the pool itself did qualify (Beach Station Caravans Ltd TC514). Potato stores where conditioning and temperature are vital to maintain the crops should qualify but this is not free from doubt !
As the above indicates it is not always clear when capital expenditure will be treated as plant and we have a factsheet on the subject of capital allowances for farmers which could help identify qualifying items.