3. Buildings (CAA 2001,s.21)

These talks are brought to you by Claritax books and happily sponsored by Six Forward Capital Allowances.

Welcome back, in this third talk we will start to unravel the meaning of plant and machinery. There is plenty of case law on the definition of plant, however this is something we will visit in later talks. But first, we need to look at the statutory position. To recap, we’ve already seen a general rule which states among other things, that qualifying expenditure must be capital expenditure on the provision of plant or machinery, however we’ve also seen that this general rule is affected by other provisions of this Act and in particular by chapter 3 – (Chapter 3 of Part 2 of the Capital Allowances Act (CAA) of 2001).

Chapter 3 is headed Qualifying Expenditure, but in reality it is most concerned with expenditure which does not qualify as plant or machinery. The first 3 sections of that chapter, beginning at section 21 are very important and today we will be looking at the first of those 3 sections. Section 21 states that “expenditure on the provision of plant or machinery does not include expenditure on the provision of a building”.

In essence, a building is not plant or machinery and the section catches both the cost of constructing and of acquiring a building. As we will see, this is subject to a critical exception, but first note that the definition of building is very widely drawn, first it “includes any asset that is incorporated into a building, or of a kind normally incorporated in a building.”

So without critical exception, all property fixtures, central heating systems, baths, showers and toilets, electrical systems, alarms and so on, would be denied allowances. The exclusion goes further however, and applies to any asset that is in or connected to a building, and that asset is included in list A.

List A is headed as Assets Treated As Buildings, which may appear to be rather odd wording, but one which does achieve its statutory purpose. The list encompasses most of the core of the building, such as the walls, floors, ceilings, doors, gates, shutters, windows and stairs, mains services and systems for water, electricity and gas, waste disposal systems, sewerage and drainage systems, shafts or other structures in which lifts, hoists, escalators and moving walkways are installed.

To reiterate the point, if an item is in list A, no plant or machinery allowances can be given for it, unless there is a statutory mechanism to save it. Case Law on the meaning of plant and machinery is vital but is always secondary to this statutory position.

Taking fire safety systems as an example, list A says that these systems do not constitute fire safety and machinery. We therefore need to find a statutory exception if there is any hope of claiming allowances and only if we could find such an exception should we start to ask if those systems could constitute plant or machinery on ordinary case law principals. Section 21 (4) is subject to Section 23 and in 2 weeks from now, we will look at that section which is of fundamental importance, but next week we will consider section 22, dealing with structures. I hope you can join me for both of those talks, meanwhile thank you for watching. This talk was brought to you by Claritax books and sponsored by Six Forward, an independent property tax consultancy working with accountants to enhance capital allowances for their clients.