Capital Allowances: can specialised buildings qualify as plant and machinery?

Many will be aware of a case that went to tribunal in 2018 in which a taxpayer successfully argued that a custom built grainstore qualified as plant rather than a building and therefore qualified for capital allowances (Stephen May v HMRC 2019). In essence, the cost of the grainstore was allowed in full against the taxpayer’s taxable profits.

Recently a similar case was heard at tribunal regarding a farming business that attempted to claim a potato store as plant and machinery. The story is as follows…

JRO Griffiths Limited (the company) incurred costs of £319,483 on the construction of a warehouse designed for storing potatoes and claimed capital allowances on the spend as plant and machinery. HM Revenue and Customs (HMRC) investigated and denied the tax relief on the basis that it was a building and did not qualify. The company subsequently took HMRC to the First Tier Tribunal.

The company grew potatoes over 1,500 acres as a supplier to the crisp industry. To that end, it required a facility which allowed the storage of potatoes in a controlled environment potentially from harvest to up to late spring.

The store was highly specialised and cost considerably more than a general purpose warehouse of the same size. Amongst its features were:

  • A computerised control system which managed the air temperature and flow
  • Cladding designed to regulate interior temperature
  • Joints and corners sealed to prevent condensation and leakage of preservative gas
  • A separate room to allow mixing of outside and inside air

The result meant that the potatoes dried quickly, did not lose weight and kept the colour required by the crisp manufacturers.

The tribunal had to consider was whether the store was plant rather than a building. This is not defined by legislation but many previous cases have looked to see if an asset had a function (plant) or whether it was a setting (building).

The tribunal found that the various parts of the store could not be separated out from the building and therefore the whole building itself was a piece of apparatus which actively performed an activity crucial to the trade of the business. Without the store’s features operating as a single unit, the potatoes could not be kept as long and the company could not deliver the quality its customers required.

Even if a building qualifies as plant, only certain buildings can get plant and machinery allowances. Therefore the tribunal then had to consider if the building met either the definition of a silo or a coldstore, both of which appear in legislation as qualifying buildings. The tribunal considered both and found that the store would qualify as either. Therefore the taxpayer’s claim was allowed in full.

This was a First Tier Tribunal case so is not legally binding. However given HMRC did not appeal the grainstore case and appear not be appealing this one, it is encouraging news to any business which may be constructing a specialist facility. It is vitally important that advice is sought before undertaking any construction project to maximise any potential reliefs.

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