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Can my expenditure on farm buildings provide any tax savings?

Structures and Buildings Allowances (SBA) were introduced in the 2018 Budget, with qualifying expenditure on buildings incurred on or after 29 October 2018 qualifying for the new SBA. Relief will be given at a flat rate of 2% over a period of 50 years. Expenditure on land will not qualify. 
In addition, Capital Allowances may be available on certain expenditure on new buildings. 
Machinery installed within a new building is commonly known to qualify for Capital Allowances (CA). In addition, CAs may be available on building works incurred to install plant and machinery. As a general rule, these costs may be added to the cost of the machinery and CAs claimed on the total cost. This also includes alterations to a building that are needed for plant and machinery to function. 
In order for a building alteration to qualify as part of the installation costs of plant and machinery, it must remain identifiable as a separate structure from the building. This point has been challenged by HMRC for many years. 
Full tax relief will be available on ‘repair’ costs, however, if it is judged to be an improvement, there is much less or no tax relief available.
There is substantial case law, and the most recent relevant case to farmers was the Pratt case; a partnership claimed relief on resurfacing a farm drive, which was initially rejected by HMRC. They instead claimed relief on work undertaken to place a concrete surface over an existing one and on appeal this was accepted as a repair, so tax relief was available. The key tax planning point of the Pratt case was that there was an existing concrete track; had there just been a ‘muddy track’, HMRC would have had a much stronger argument.
We suggest all farm improvements and repairs are fully considered at an early stage with your adviser to secure the appropriate tax relief (ideally before the expenditure is incurred). In addition, the recent May Case has highlighted the need to review expenditure on Grain Silos at the planning stage as alterations to the system may substantially increase and bring forward the tax relief available.

By Andrew Rawlings, Senior Manager, at Whittingham Riddell LLP.

 

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