2. Introduction to Plant & Machinery Allowances

These talks are brought to you by Claritax books and sponsored by Six Forward. The above is our second video in this series of talks on capital allowances – last week’s video was an introduction. In this second talk will look more closely at plant and machinery capital allowances.

As previously mentioned, these allowances are covered in part two of the Capital Allowances Act (CAA 2001, pt.2). Part 2 opens with section 11, where the key starting point for determining whether a person can claim plant and machinery allowances or not, can be found.

Section 11 states that plant and machinery “allowances are available if a person carries on a qualifying activity and incurs qualifying expenditure”. Allowances will be due if two boxes can be ticked – is there a qualifying activity? Or is there qualifying expenditure?

To begin with, we will look at what constitutes a qualifying activity – the legislation section 15 provides a long list of qualifying activities; these include trades, various types of property business, UK furnished holiday lettings, an ordinary overseas property business, an EEA furnished holiday lettings business, a profession or vocation, as well as various concerns listed in section 12 such as mines, transport, undertakings etc., managing the investments of a company with investment business, special leasing of plant and machinery, and employment or office.

Although this appears to be an extensive list, in reality it can be simplified into trades, professions or vocations, a variety of property businesses, special leasing (this refers to the hiring out of plant or machinery otherwise than in the course of any other qualifying activity) and various other categories.

In practice most claims for plant and machinery allowances are made for trades and for property businesses. Usually, the nature of the qualifying activity is not of too much concern, however the distinctions can be important, therefore, in cases of doubt it is a good idea to refer back to section 15.

As an example we can think about plant or machinery in a dwelling house – it is widely known that plant or machinery allowances can’t normally be claimed in a domestic property – taken from section 35.

“35(2) The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling house.” This restriction, in fact, only applies for property businesses and for special leasing – it doesn’t apply for trades or for furnished holiday lettings.

It is extremely important to understand the technical distinction between an ordinary property business and a furnished holiday lettings business, as this can make a significant difference. Another key point to remember is that allowances are given separately for each different qualifying activity. If the same person carries on both a trade and a property business, the allowances for those two elements must be kept separate.

Following our quick look at qualifying activities, we will look at the much bigger issue of qualifying expenditure – it will take several weeks to go over this topic and to begin, it is necessary to revisit section 11.

Section 11 (4) – ‘General Rule’

  • Capital in nature
  • Incurred for the qualifying activity
  • Owned by the claimant

Section 11 (4) provides the general rule as to what constitutes qualifying expenditure – it must be capital expenditure on the provision of plant or machinery, it must be incurred wholly or partly for the purposes of the qualifying activity, it is carried on by the person incurring the expenditure and the person incurring that expenditure must own the plant or machinery as a result of incurring it. The wording is packed with significance and crucially this “general rule is affected by other provisions of the Act and in particular by Chapter 3.”

Chapter 3 includes sections 21 to 23, with the various lists A, B and C, which is what the next discussion will focus on, starting from next week.

Thank you for watching, please get in touch if you have any queries, we look forward to seeing you in a week’s time.