Mark Griffiths, Director here at Dyke Yaxley Chartered Accountants in Shrewsbury and Telford, reports on how a recent tribunal could have important tax implications for Shropshire farmers.
Specialists at Dyke Yaxley have worked with a taxpayer through a tax tribunal and appeals process to determine the conditions required for a business to claim plant and machinery allowances on a farm building.
The case revolved around the question of whether a potato store could be considered plant and machinery, or whether it was merely a building.
Potato stores are extremely complicated and integrated structures – they have reinforced floors and walls, heavy insulation, and ventilation systems designed to support the potato crop in a temperature-controlled environment.
But, in order to qualify as plant and machinery, the Judge set out five tests: firstly the taxpayer must carry on a qualifying activity on which they then incur capital expenditure.
This capital expenditure must be on plant and machinery which they own, and finally, if expenditure is on a building or structure, it does not qualify unless it satisfies one of the descriptions in List C.
The Judge agreed that three out of five required conditions were met, but the question was whether the building could be considered as plant and machinery and appeared on List C in order to qualify for the allowances.
HM Revenue and Customs argued it was purely a storage building, but the taxpayer said the potato store was plant as it played a critical function in their business to store the potatoes in the right condition before they were sold on.
The Tribunal also considered whether the building could be considered as a silo for temporary storage or a cold store.
It was accepted that the building was a temporary storage facility for the potatoes and that this did meet the definition of a silo despite numerous arguments over the definition of a silo and a potato.
HMRC said that as the stores were cooled by ambient air, with no mechanical refrigeration provided, they were not cold enough to be considered a cold store. But the taxpayer said ambient air was the most efficient technology available when the shed was built, and potatoes were stored at the appropriate temperature for their variety and could be stored at a lower temperature if necessary.
After hearing the evidence, the Judge accepted the building was apparatus as it not only provided storage, but it maintained the crop at a specific temperature having first cured and dried the potatoes, which was an integral part of the taxpayer’s business.
The case is now subject to the Appeals window, and while the result is not binding, it has strengthened the definition of what a silo for temporary storage looks like, as well as the definition of a cold store – all of which may be of interest to businesses outside the farming and potato industries.
But it’s important to understand the level of integration and functional activity that the structure must have in order to be considered to be plant and machinery.
We have worked with the taxpayer throughout the whole of the enquiry and Appeals process, and it’s vital that anyone in a similar position should seek professional advice at the earliest opportunity.
Mark Griffiths, Director.