Since capital allowances were invented accountants and businesses have struggled to determine whether certain items should be classified as “plant”, and hence qualify for higher capital allowances, or whether the expenditure was on a building and thus little or no allowances are due.
This conundrum boils down to the “with which or in which” test. If the item is apparatus with which the business carries on its trade, it is plant and it should qualify for capital allowances, assuming the item is not a car. If the expenditure was on a structure in which the trade operates, it is a business premises that doesn’t qualify for capital allowances where the cost was committed before 29 October 2018.
Where a non-residential building is constructed or improved on or after 29 October 2018 the cost may qualify for the new structures and buildings allowance (SBA) which we outlined in our newsletter on 15 November 2018. However, the SBA will only provide an annual allowance of 2% of the costs, so classification of the expenditure as plant will still be preferable.
Grain silos may look like structures, but they are actually huge fixed apparatus which dry and distribute grain. HMRC has long accepted that grain silos qualify as “plant” if the grain is held in the silo on a temporary basis, so the silo does not perform the function of a warehouse. HMRC’s capital allowance manual sets out this position in para CA22050.
This is why Stephen May claimed the that full cost of his grain silo qualified for capital allowances. HMRC disagreed, although its own capital allowance specialist had said May’s claim had merit, he came under pressure to “hold the line” and resist the claim for the silo.
By the time the case came before the tribunal the same capital allowances specialist had left HMRC and was advising the taxpayer. Stephen May won his case, but beware that HMRC’s policy is now to resist claims that grain silos are plant.
This case also demonstrates how valuable specialist knowledge can be in the area of capital allowances. Please call our office as we are always happy to help with queries on any type of allowance.
Written by the Tax Advice Network