Farming Tax: Capital allowances on grain drying facilities – What you need to know
31st May 2019
Getting capital allowances for facilities and buildings on your farm is a tricky contest. But, with careful tax planning in advance, you can give yourself the best chance of being successful with your claim.
Recently there was a case involving the claim of capital allowance on a grain drying facility referred to as a ‘horizontal grain silo’. The case has now been heard, and the decision released in January 2019 (court case May and Anor (2019), TC 06928) ruled in favour of capital allowances for grain silos.
So is this an opportunity to reconsider your own position, if you have recently constructed similar facilities? Before getting too eager to approach Her Majesty’s Revenue and Customs (HMRC) it’s important to understand the circumstances of this case.
Capital allowances let a company gain tax relief on tangible capital expenditure by allowing it to be expensed against its annual pre-tax income. As gov.uk states: “You can claim capital allowances when you buy assets that you keep to use in your business, for example: equipment, machinery, business vehicles, for example cars, vans or lorries. You can deduct some or all of the value of the item from your profits before you pay tax.”
Capital allowance farming case study in 2019: How Stephen May’s farming business claimed successfully
There had previously been a number of farming enterprises that had invested in similar facilities. One of the witnesses giving evidence in this case, who had been a technical specialist with HMRC, had stated that it was their policy to “hold the line” and ensure such structures didn’t qualify for plant and machinery allowances.
Stephen May’s farming business included around 700 acres of arable land, and he needed a facility to dry and condition the grain he grew, which was sold to local farmers and grain merchants. He explored various options before deciding that the horizontal rather than vertical silo was the most effective for his business.
The quotes for the work stated that the provider was to manufacture and supply a grain store building purposely designed for the customer, to include control of temperature and moisture levels for grain. The structure was simple and efficient to reduce labour costs, and suitable to the local weather conditions. It is also noted that the actual cost of the structure itself was about double that of a general-purpose agricultural building of a similar size.
When the Tribunal conducted a site visit they noted that, to a uninformed observer with no specialist knowledge of agriculture, the facility looked like large steel-framed barn or shed with a concrete floor with piles of grain lying on it.
Inside the building were several pedestals that were used to carry a fan assembly, allowing air to be drawn up through the piles of grain. They noted that the building was constructed with 10ft tall thicker concrete panels, to retain the maximum amount of grain that would be stored. The walls contained air inlet vents and an extraction fan to manage the air in the building and draw air into the interior of the structure to maintain the condition of the corn.
The Tribunal accepted that the drying mechanisms would not work if the pedestals were removed from the building, and that the facility worked together as it required the whole structure to provide the air flow. As the grain was air dried it was important that the air was drawn through the building. The roof space above the grain was specifically designed for the extraction system to work.
The FTT had to decide whether the facility was:
- A silo provided for temporary storage, and therefore fell within the meaning of List C in Section 23 of the Capital Allowance Act 2001, and;
- The whole facility was plant and machinery within the meaning of Section 11 (4) (a) of the Capital Allowance Act 2001.
They were satisfied that the building could not be used for any other purpose during the year because of the very smooth flooring, and that the air space was suitable for grain, but unsuitable for livestock, machinery or forage storage. They were also satisfied that the pedestals were essential to meet Home Grown Cereals Authority (HGCA) standards. And they were satisfied that the use of the facility was temporary, as once the corn was sold the premises were cleaned and made ready for when the next year’s harvest became available.
If you believe this finding may be relevant to your own situation, it’s important that you have sufficient evidence to show that the grain store is very much a purpose-built facility, with no opportunity to be used for anything other than the drying, condition and storage of grain. In tax cases the burden of proof will rest with you as the taxpayer, so you will need detailed information to support your claim for a review of any capital expenditure.
If you wish to review your own circumstances we would be delighted to help you.