Historically, farmers and landowners have been unable to claim significant tax reliefs when constructing new storage facilities. Jack Deal and Chris George consider how this is changing with the introduction of the Super Deduction, and the potential implications of the recent decision in the First Tier Tribunal (FTT) in JRO Griffiths Limited vs HMRC.
In the March 2021 Budget, the Chancellor announced the Super Deduction: a new tax relief available only for companies. The Super Deduction comprises a 130% first-year capital allowance for qualifying plant and machinery assets, alongside a 50% first-year allowance for qualifying special rate assets. The Super Deduction may apply to expenditure incurred between 1 April 2021 and 31 March 2023 and, unlike the Annual Investment Allowance, there is no cap on the amount of Super Deduction a company can claim. There are, as you might expect, a number of conditions which need to be met, and which require specialist advice.
In the recent case JRO Griffiths Limited vs HMRC, the FTT agreed with the taxpayer that their new storage facility qualified as plant for capital allowances. The FTT concluded that it was satisfied that the functions of the storage facility were such that it formed an integral part of how the taxpayer carried out their qualifying activity, rather than simply being a setting for their trade.
Whilst HMRC have a right to appeal this decision, it is encouraging to see the FTT decide in the taxpayer’s favour in this case, and also to give guidance within their comments as to what constitutes temporary storage for capital allowances purposes.
How does this affect farmers and landowners?
Farmers and landowners should consider the JRO case along with the Super Deduction in planning future storage projects, as significant tax savings could be achieved. For example, a company planning on spending £500k on a new storage facility, which qualifies as plant for capital allowances and is eligible for the Super Deduction, could claim tax relief of £650,000. At the current corporation tax rate of 19%, this could lead to a cash saving of £123,500, bringing the cash cost of the project to £376,500.
Farmers and landowners currently have a good opportunity to both maximise the functionality of their storage facilities, and to utilise available tax reliefs to bring down the cash cost of the project. Professional advice should be taken around the timing of storage projects and the specification of their build to maximise their capital allowances claim.