CAPITAL ALLOWANCES 2021

A round-up of our most popular and topical articles covering capital allowances case law, legislation changes, news and related announcements.



  1. Tax Costs of Commercial Property Insurance Claims

  2. Work in Progress and Capital Allowances

  3. Structures and Building Allowances Simplification

  4. Farming Partnership Loses Holiday Cottage Tax Claim

  5. Expenditure in Connection With

  6. Specialist potato storage warehouse win for taxpayer

  7. Free Online Super Deductions Course

  8. Notable Victory for Eurocentral Investors

  9. A Badly Drafted Closure Notice

  10. Gas Storage Caverns as Plant

  11. Satellite Launch Costs

  12. Tighter Incentives for Green Cars on Statute Books

  13. Reduce Workload and Costs in Your Claims

  14. Defending Structure Claims (as plant)

  15. The Importance of Working Together (fixtures sales)


 

Tax Costs of Commercial Property Insurance Claims

No-one wants the disruptive effect of a destructive insurance claim on business operations and this article explores the capital gains tax and capital allowances position of commercial property insurance claims.


Accurate record keeping of past capital allowances claims is essential to net off insurance proceeds correctly and asset replacement expenditure can trigger a fresh claim.


Find out more here.

 

Work in Progress and Capital Allowances

Very large or complex building projects can span a number of accounting periods and the fact these costs may be held in Work in Progress until completion, or first use, does not always limit capital allowances claims in the intervening periods. In fact, some types of accelerated allowances require claims to be made in the actual period the qualifying expenditure is incurred which can raise some important practical challenges.


This article explores the different rules for ‘timing of expenditure’, ‘ownership’ and ‘qualifying trade’ concepts along with practicalities of making an accurate claim.


Find out more here.

 

Structures and Building Allowances Simplification

Finance Act 2021 introduced a minor amendment to the existing Structure and Building Allowances (SBAs) to correct an anomaly in the Allowances Statements needed to make the claims for works to existing premises.


To reduce the burden of calculating and administering several claims for the same building, an allowance may be claimed instead as though expenditure was incurred on one of the following (whether or not those days fall in the same chargeable period):


  • the latest of those days on which expenditure was incurred

  • the first day of the chargeable period following the latest of those days

  • the first day of the chargeable period following the day on which expenditure was incurred.

This can be particularly helpful where there are multiple phases of construction or items of expenditure that occur or are brought into use on different dates in a chargeable period.


Find out more here.

 

Farming Partnership Loses Holiday Cottage Tax Claim

With demand for staycation holiday property outpacing supply, this recent case [2021] UKFTT 0193 (TC) provides a salient reminder on the need for owners (in this case a farming partnership) to plan all stages of the transaction for tax purposes (and for all the stakeholders involved).

Not only with regard to the fundamentals of capital v revenue for tax purposes but also if you are going to incur expenditure for a new business make sure you have a clear intention to actually carry on that business. Crucially here, the farming partnership never had plans to actually operate the FHL business - it was always the intention for it to be transferred on completion and owned/operated by one of its partners instead.


Find out more here.

 

Expenditure in Connection With

This latest decision by Upper Tribunal concerns an appeal by both HM Revenue & Customs (HMRC) and the taxpayer (a Limited Liability Partnership) on the qualifying costs paid through a Development Agreement for a 124 bed hotel and their eligibility for Business Premises Renovation Allowances (BPRA).


HMRC is known to take a narrow interpretation of what expenditure is on for capital allowances purposes; and specifically BPRA. Although BPRA has now been phased out, the points raised will have wider implication and are a common feature in related capital allowances compliance checks.


Find out more here.

 

Specialist potato storage warehouse win for taxpayer

This case concerns the treatment of a £319,483 warehouse designed and operated as a potato storage facility in the accounting period ended 31 March 2015. The taxpayer argued that the entire warehouse was plant because it met at least two of the exception conditions; namely, it functioned as a cold store, and it also functioned as a silo providing temporary storage – either one would be enough to win, and the First-Tier Tribunal (FTT) found in favour on both.


It is worth noting that the building in this case was no ordinary warehouse. It cost five or six times more than a standard warehouse of a similar size and contained several specialist features to enable the potatoes to be stored correctly in the British climate – taken as a whole it was a single large and complex piece of kit.


Find out more here.

 

Free Online Super Deductions Course


With Finance Act 2021 receiving Royal Assent earlier this month we have collated a short online course on the new capital allowances super deductions designed to inform students on how the relief operates, key timings and claim restrictions with example calculations and knowledge quiz on completion.


With all the recent changes (e.g. for landlords) and detailed HM Revenue & Customs (HMRC) guidance pending we thought it might provide other interested parties with a fresh alternative to understanding the key points in what has the potential to be a very important relief for the next two years.

There is no time limit or restrictions on how often you can view the course and we would be delighted to receive feedback and/or discuss any questions that you might have.


Full details with joining instructions can be found here.


 

Notable Victory for Eurocentral Investors

This is a case for Industrial Buildings Allowances (IBAs). IBAs were phased out from 2007 onwards so the decision is largely of historical interest although it was north noting that it is not uncommon for legal titles for properties in former Enterprise Zones to have conditions within them for the occupants to keep the buildings in commercial use arising from some of the IBA clawback provisions discussed in this decision.


The issue facing Upper Tribunal (UT) was what seems to be a simple point: can a building said to have been temporarily out of use as an industrial building if it is never in fact brought back into use? First-tier Tribunal (FTT) said no, but the Upper Tribunal has now reversed that decision.


This was a notable victory for the taxpayer as some £13m of tax allowances depended almost entirely on the true meaning of the word temporary.


Find out more here.

 

A Badly Drafted Closure Notice

This Upper Tribunal case concerns closure notices in a capital allowances claim for software licenses held by First-tier Tribunal (FTT) in 2018.


Although the closure notice in this case could have been better worded, UT dismissed the taxpayers appeal. This is not the easiest decision to follow and one can see how the taxpayer might feel aggrieved that HMRC had still left some loose ends open. Anybody dealing with disputed closure notes will be well advised to study the decision.


Find out more here.

 

Gas Storage Caverns as Plant

Can a hole in the ground be an item of plant or machinery? The hole here was in fact a sophisticated underground cavern which had been artificially created by dissolving rock salt and then forcing the water out to be replaced by gas, which was held for storage.


That was the crux of the dispute in the recent case of Cheshire Cavity Storage 1 Ltd and another v Revenue and Customs Commissioners [2021] UKUT 50 (TCC). Were these caverns or caves merely the place where gas was stored, or were they in effect a giant item of ‘plant’ for the management of gas?

First-tier tribunal (FTT) had found against the company and the Upper tribunal agreed.


Find out more here.

 

Satellite Launch Costs

The recent case of Inmarsat Global Limited v The Commissioners for Her Majesty’s Revenue & Customs [2021] UKUT0059(TCC) is an appeal against a decision of the First-tier tribunal (FTT) that expenditure on the cost of launching six satellites between 1990 and 1996 was not eligible for capital allowances.


The challenge here was that the company incurring the launch costs (which the claimant wanted to base its claim on using the succession in trade principles) did not actually own any of the satellites at the time the expenditure was incurred and as entitlement to plant and machinery allowances ("PMAs") depends on ownership (as defined within the Capital Allowances Acts (‘CAA’)) their claim failed.


This case highlights the importance of considering tax at the inception of a deal and what used to be possible in older tax-based leasing arrangements. Whilst the taxpayer lost the appeal, Upper Tribunal (“UT”) agreed with some of the other arguments put forward, in particular the meaning of the terms “required” and “provision”, which are still used in the CAA legislation today.


Find out more here.

 

Tighter Incentives for Green Cars on Statute Books

On 5th February the government passed the legislation announced in Budget 2020 to extend and tighten the availability of 100% First Year Allowances for low emission cars.


The measure is designed to incentivise the uptake of zero CO2 emission vehicles by businesses and support the Government’s announcement of its desire to phase out the sale of new petrol, diesel and hybrid cars from 2030. This is also intended to support its wider policy on climate change to reduce all greenhouse gas emissions from the UK to net zero by 2050.


Find out more here.

 

Reduce Workload and Costs in Your Claims

What is often not widely understood is that businesses can select a sample of projects (e.g., from multiple properties) to look at in detail and extrapolate the findings to the total project population. For example, if a company reported gross capital of expenditure of £10m on a number of projects and found from a sample representing £1m of that expenditure that £750,000 (or 75%) qualified for capital allowances then the total claim for the business would be for £7.5m (or £10m x 75%).

Sampling can, therefore, save businesses a significant amount of time and money in claim analysis without compromising results but its use comes with strict conditions.


Find out more here.

 

Defending Structure Claims


The case of Revenue and Customs Commissioners v SSE Generation Ltd [2021] will be of interest to anyone involved in capital allowances because it discusses in some detail the application and principles behind the statutory ‘structure’ exclusions contained in the Capital Allowances Act (‘CAA’) 2001 s22 and its potential exemptions in CAA 2001 s23 – List C.


Following this latest ruling in the Court of Appeal, SSE Generation Ltd (‘SSE’) is set to largely maintain its original capital allowances claim for its £300m Glendoe Hydro Electric Power Scheme near Fort Augustus above Loch Ness in the Highlands of Scotland which was completed over 10 years ago.


Find out more here.

 

The Importance of Working Together


Co-operation and planning with fixtures sales are essential to make the most of any capital allowances in the deal involved.


This article explores the pitfalls and opportunities from buying or selling commercial real estate that contains plant and machinery ‘fixtures'.


Find out more here.