Capital allowances and purpose-built structures

Dec 24, 2019

Ian Parker, Director at leading, local accountancy firm Whitley Stimpson, considers the impact of a tax tribunal decision earlier this year on claiming capital allowances on structures.

Generally, the construction of buildings and structures has not been eligible for tax relief by way of capital allowances as these have only applied to the plant and machinery contained within the structure.

Notwithstanding this, HMRC have permitted grain silos provided for temporary storage to be regarded as plant and machinery for the purposes of capital allowances and thus have qualified for standard capital allowances including the annual investment allowance. Typically, these facilities take the form of vertical silos with conveyors to carry grain to and from the loading area.

The case of Stephen May, earlier this year, saw an arable farmer claim plant and machinery capital allowances on the entire cost of a facility to dry and store his grain by claiming it should be classed as a ‘horizontal’ silo.

This was a custom designed silo, which cost twice as much as an equivalent sized general barn. The silo could only be used to store, dry and maintain grain and could not be used for any other purpose according to the farmer. While it may have looked like an ordinary barn, the structure of the building was designed specifically to reduce the grain’s moisture content by including a large wall fan and very thick walls.

HMRC initially denied the claim and argued that only the ventilation equipment within the facility would qualify for capital allowances. They argued that the structure of the facility itself was first and foremost a ‘building’ and as such expenditure on the building of the structure was ineligible. This would have restricted the tax relief to approximately 20% of the total costs.

However, the tribunal concluded that the moveable drying equipment would not function effectively without the specialist design of the grain store. It was also noted that the function of the buildings was not just to dry the grain, but to keep it conditioned until it was sold through a continuing process of aeration. Finally it was accepted that the facility had been constructed on the basis that grain would be kept for nine to ten months at most, so was accepted as a temporary storage facility.

The ruling makes it clear that in coming to this conclusion it was important that the structure of the building itself was integral to its successful performance.

The case is significant as it means that build cost of the entire structure is eligible for capital allowances.

We believe that the case could also apply to other types of specialist facilities such as broiler barns, where the design of the building is integral to its operation. It will not apply to general purpose buildings.

We recommend anyone who has erected a specialist grain store to consider reviewing the allowances they can claim. The claim is highly dependent on the specific facts of each case and as such it is vital that all figures can be fully supported. Please contact the team to find out more information and to arrange a no obligation meeting.