Why some farm buildings qualify for faster tax relief

Tax relief for investment in farm structures is usually limited to the 3% annual rate offered by the Structures and Buildings Allowance (SBA).

At this rate it takes more than 33 years for the cost to be fully relieved for tax purposes.

However, there are some limited examples where the entire structure could qualify as plant and machinery, depending on its purpose, says Stephen Martin, tax partner at accountant Old Mill.

See also: How to maximise capital allowances on building investments

This offers a much faster form of tax relief under the Annual Investment Allowance (AIA), which permits up to £1m of expenditure to be offset against taxable profits in the year it is incurred.

This gives immediate tax relief, with any additional expenditure above the £1m allowance allocated to the capital allowances “main pool” and receiving tax relief on a reducing balance basis, now at 14% since the drop from 18% took effect last month.

“If you operate via a limited company then the unlimited capital allowance regime known as full expensing could potentially be used to claim 100% relief for expenditure on even larger sums, if the AIA limit would otherwise be breached,” says Stephen.

“Overall, the level of capital expenditure deductible for tax purposes should not change, but the key difference is timing of the relief.

“For businesses that have invested heavily in new buildings, whether sole traders, partnerships or companies, accelerating tax relief can make a significant difference to cashflow, as the tax payable to HMRC is reduced more quickly.”

If a building can be agreed to function as plant, then the full amount of the cost of its construction can be claimed as such, as well as the qualifying elements of plant and machinery it houses, says Stephen.

He has managed several claims of this type over the past few years for farming businesses.

For example, one holding which had diversified into ice cream making successfully claimed 100% first year allowance, under full expensing, on the full cost of its cold room chiller building.

A claim was also made by a mushroom enterprise for the full cost of non-fixed polytunnels, which for the purposes of the relevant tax legislation counted as plant.

Legislation

Stephen says: “Section 23 of the Capital Allowances Act 2001 specifically outlines a list of items that have been excluded as being treated as buildings, structures and other assets for capital allowances purposes, meaning that they could qualify as plant and machinery.

“The determining principle is whether the purpose of these assets is to insulate or enclose the interior of a building or to provide an interior wall, floor or ceiling which is intended to remain permanently in place. If that is the reason for spending the money, the expenditure is on a building or structure, where SBA might be relevant.

“But if the purpose is for the asset to be used as an active piece of equipment within the business – effectively apparatus for carrying on the business – a claim for plant and machinery capital allowances on the structure might be possible.”

Potentially eligible structures

Examples included with the Capital Allowances Act of types of structures or buildings which might be relevant to farming businesses for plant and machinery claims include the following, although this is not a comprehensive list:

• Slurry pits or silage clamps
• Silos provided for temporary storage, or storage tanks
• Cold stores, including those with refrigeration or cooling equipment
• Cold rooms
• Any glasshouse constructed so the required environment (namely, air, heat, light, irrigation and temperature) for growing plants is provided automatically by devices forming an integral part of its structure
• Moveable buildings intended to be moved in the course of the qualifying activity.

“It is also important to note that an item’s inclusion in the list does not guarantee that expenditure will qualify as plant and machinery,” warns Stephen. “Instead, it simply means that these assets are not automatically excluded.

“This can be a complex area of tax law, and while there can be significant opportunities to accelerate tax relief, each project must be considered carefully based on its own facts.”