When is a building plant and machinery?

22 February 2019 - Elizabeth Nichols

The answer, in the case of Steven May v HMRC, is when that building is a grain store. Chris George, Tax Advisory Manager at Scrutton Bland considers the tax implications when building usage is called into question. 

The taxpayer in this case was an arable farmer who built a new structure to dry and store his crops.  Although from the outside the building appeared to be similar to an ordinary agricultural barn, it was fitted with equipment to reduce the moisture content of the crops to make them more saleable.

HMRC’s view was that only the cost of the drying equipment (about 1/5th of the total cost) was eligible for Capital Allowances as plant and machinery.  The taxpayer disagreed and insisted that the entire cost of the store could be claimed as Capital Allowances.  The case was taken to the First Tier Tribunal, who sided with the taxpayer.

The case focused on whether the building was used for temporary storage and whether it was plant.  HMRC argued that stock held in the store for 9 or 10 months was not temporary and was instead permanent.  However, the tribunal disagreed and said that the farmer’s business was growing and selling crops, not storing them and the crops could only be stored for a few months before it deteriorated and became unsellable.

The tribunal also concluded that all the components of the building, including the structure, were integral to the conditioning of the crops and therefore the full costs were qualifying for plant and machinery allowances.
Given the wide-ranging implications of this case, it is likely that HMRC will appeal the decision, so we may not have heard the last of this.  However, it does highlight the importance of obtaining proper professional advice when it comes to incurring significant capital spend.  The right treatment could save significant amounts of tax, especially with the recently introduced £1million Annual Investment Allowance.

When most tax professionals see capital spend on the structure of a building they immediately think ‘non-qualifying’.  In light of the decision in this case, perhaps it is time to put more thought into the underlying asset and ask more detailed questions about the overall function and purpose. 

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