Are you considering whether expenditure on farm buildings may provide tax savings?
Agricultural Buildings Allowances were phased out by April 2011 and therefore tax relief may not be available on future expenditure on new buildings.
However, Capital Allowances may be available on certain expenditure on new buildings.
Machinery installed within a new building is commonly known to qualify for Capital Allowances. In addition, CAs may be available on building works incurred to install plant and machinery.
As a general rule, these costs may be added to the cost of the machinery and CAs claimed on the total cost.
This also includes alterations to a building that are needed for plant and machinery to function. This point has been challenged by HMRC for many years, but the findings of the J D Wetherspoon case provide more clarity. In order for a building alteration to qualify as part of the installation costs of plant and machinery, it must remain identifiable as a separate structure from the building.
Wetherspoon’s obtained tax relief on the cost of bricks, mortar and tiles, and the labour in putting these together to form a toilet cubicle. CAs were also available on raised flooring leading up to machinery and the splash-back tiles surrounding sinks, etc. This principle may be relevant to specific farm buildings.
Full tax relief will be available on ‘repair’ costs. However, if the ‘repair’ is judged to be an improvement, there will generally be no tax relief available.
There is substantial case law, and the most recent relevant case to farmers was the Pratt case where a partnership claimed relief on resurfacing a farm drive, which was initially rejected by HMRC. They claimed relief on work undertaken to place a concrete surface over an existing one. On appeal, this was accepted as a repair to an existing asset and therefore tax relief was available.
The key tax planning point of the Pratt case is that there was an existing concrete track. Had there just been a ‘muddy track’, HMRC would have had a much stronger argument.
The above highlights the need for all farm improvements and repairs to be fully considered at an early stage with your adviser to secure the appropriate tax relief (ideally before the expenditure is incurred).
By Roy Jackson, a manager at Whittingham Riddell LLP, Shrewsbury