Can you claim plant or machinery allowances for buildings?
It is a fundamental capital allowances question, but any attempt to give a simple yes or no answer can only cause more problems than it solves. The latest case report from the First-tier Tribunal (FTT) provides a useful starting point for a reminder of the basic principles. The case of JRO Griffiths v HMRC [2021] UKFTT 257 (TC) concerned a storage warehouse for potatoes used to make crisps.
As always, case law applies statutory principles, so the starting point is always the legislation, which for these purposes is the Capital Allowances Act 2001.
Section 21 broadly states that buildings do not qualify as plant. Section 22 imposes a similar restriction for structures. It was common ground in the Griffiths appeal that the potato storage facility in question was either a building or a structure, and was therefore caught initially by either section 21 or section 22.
Both of those sections are, however, “subject to section 23”. Section 23 provides some very important relaxations of the principle that no allowances are due for buildings. These include some general relaxations (e.g. for integral features) and some more specific ones (included in List C).
The company relied on two of these specific relaxations, arguing that the potato storage facility was a cold store (item 18 at List C) and/or a “silo provided for temporary storage” (item 28(a)).
Referring to the 2019 FTT decision in May (which concerned a grain storage facility – see our analysis here), but in fact reaching its own decision irrespective of that earlier one, the FTT found clearly that the potato facility did constitute a silo for temporary storage. As in that earlier decision, the FTT here gave a much broader definition of “temporary” than that argued by HMRC, allowing a period of up to some ten months, rather than the seven days HMRC suggested.
Although it did not strictly need to do so, the FTT also found that the storage facility was a cold store. It was not necessary for the store to be mechanically refrigerated; rather, the potatoes were initially cooled and were then kept cool by the operation of the walls dispersing the heat and by the blowing of air through the crop.
As always, the facts really do matter. This was much more than just a shed, even though it looked from the outside like an ordinary commercial warehouse covered in cladding panels. There were many technical aspects of the store that contributed to the precise requirements of maintaining the required internal temperature. Again, there are many clear parallels here with the May decision.
So the potato store successfully negotiated the statutory restrictions. That, however, was not enough in itself, as it was also necessary to show that the store was plant or machinery on long-established case law principles. The FTT applied the usual familiar principles (especially apparatus v setting, and the function of the store within the business) and had no difficulty concluding that the store was not the (mere) setting of the trade but was an integral part of how the appellant carried out its qualifying activity.
To return to the question at the start – whether you can claim plant and machinery allowances for buildings – the answer is not straightforward. In the simplest terms, the answer is no, but there are very important exceptions. In practice, the most common exceptions are for fixtures (including integral features) that are rescued by s. 23. More rarely, as in this instance, it is possible that an entire building will qualify as plant, by overcoming both the statutory and the case law hurdles.
It is disappointing that HMRC chose to pursue this case to the FTT, given the strong parallels with the May decision, and given that the facts pointed clearly to the conclusion that was indeed reached by the FTT. Going to tribunal on a technically complex case is expensive for taxpayers, and some will choose to back down rather than incurring costs on a case where a successful outcome may be justified but cannot be guaranteed. HMRC should take on board the messages repeatedly coming from the FTT and should back down in appropriate cases at an earlier stage.
