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Curiouser and curiouser

Have you installed new ‘plant’ in a building used for the purposes of your trade recently? ‘Plant’ includes such items as lifts, central heating, air conditioning and electrical systems. All these items qualify for plant capital allowances.

But a tax allowance is not necessarily limited to the plant. It can include capital expenditure on alterations to an existing building incidental to the installation of plant in a building. For example, the installation of a lift to upgrade an office block will require the construction of a lift shaft. The lift qualifies as plant but the lift shaft does not. However, the shaft qualifies for plant allowances under the ‘incidental’ rule. In contrast, expenditure on installing a lift shaft when constructing a new building does not qualify as it is not expenditure on alterations to an existing building.

How much expenditure falls into the extended meaning of plant has been considered in a recent tax case. Wetherspoon pubs had submitted significant claims for expenditure incurred on the conversion of all sorts of premises into pubs. Some of the claims were disputed by HMRC. Much of the disputed expenditure related to whether non plant costs can be classed as incidental to the plant and thus qualify as deemed plant.

One example of expenditure where the Tribunal agreed with Wetherspoon was a cement floor. A cold store was created within one pub in order to chill and maintain the temperature of draft beer. Because of anticipated spillages and associated washing down, the floor had to be inclined to a new drainage channel by means of which liquids would be pumped out by pumping equipment within the cold store. Wetherspoon claimed the cost of the cement flooring as expenditure on an alteration to the existing building which was incidental to the installation of the drain and pumping equipment.

HMRC took the view that some of the expenditure was eligible for allowances, being the proportion which related to the provision of the incline. But they argued that:

• 94.4% of the cost should be disallowed because that represented the proportion which would have been incurred anyway if a level floor had been installed.
• there was a lack of proportion between the provision of the inclined floor and the drain which made it inappropriate to regard the former as incidental to the provision of the latter.

The Tribunal considered that full relief was due. There never was any intention to provide a level floor which was then altered to an inclined floor - it was to be an inclined floor from the start. The fact that the cost of altering the existing building to provide the inclined floor was relatively higher than the cost of the plant to whose installation the alteration was incidental is immaterial.

In order to maximise the claims that can be made for both plant expenditure and incidental costs, it is very helpful to plan the potential capital allowances claim before the work begins on the building. This helps to ensure that purchase orders, invoices and other documentation provide sufficient analysis of the costs involved. Please contact us if you are planning to incur capital expenditure on your building.

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