• Bryan Crawford

Property additions to meet Covid-19

Updated: Jul 27



One can expect a lot to be written in the next few months about the tax treatment of property additions arising to meet a new era of social distancing and protected premises to control the spread of Covid-19 (or similar). Here we set out some of the key issues we expect to be examined.


Short-term emergency additions


With such a fast changing landscape on what is allowed to be open and under what circumstances, it would seem reasonable to conclude in the first instance, measures such as screens or additional signage installed in a property are exceptional temporary measures which should be treated in the same way as other essential operational business expenditure (i.e. deductible under business expense rules).


After all, most businesses motivation will be to get back to normal as soon as possible and in order for expenditure to be regarded as ‘capital’ it is generally accepted that there has to be some intention for ‘enduring benefit’ or ‘durability’ in the business.


An approach which has withstood the test of time is to be found in the judgment of Viscount Cave in the case of Atherton v British Insulated and Helsby Cables Ltd HL 1925, 10 TC 155. He said:


'… when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade … there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.'


Whilst there is no timeframe attached to ‘enduring benefit’ in the tax legislation, it is usually considered in practice that a useful, economic life of two years or more is sufficient to pass the test of durability to trigger consideration for capital treatment.


In the case of Hinton v Madden & Ireland Ltd. 38TC391, knives and lasts which had an average life of 3 years and which were used by a shoemaker were held to be capital and eligible for plant and machinery allowances. HM Revenue & Customs CA21100 also highlights this case and a 2 year durability test.


Note: if a business decides to capitalise such property additions for commercial reasons it will only ever receive tax relief in line with its depreciation policy. If your business does not depreciate its fixed assets (as is common amongst many landlords) it may receive no immediate tax relief at all.


Long term adjustments


Some businesses have prepared themselves for a pandemic ready future with more significant changes in working operations and customer interaction that have the potential to create a more durable legacy, including: -

  • IT Infrastructure (including laptops, virtual conferencing etc) for remote and/or social distanced servicing.

  • Sliding/internal screens and walls to create more personalised/segregated internal space.

  • Localised and enhanced air filtration systems to protect occupants beyond normal standards.

  • Security and health screening pods to regulate capacity and people.

  • Outdoor hospitality and entertainment to increase capacity and provide more all-weather service.


It is worth remembering that just because the government might wish or require a business to adapt their property to meet certain requirements, it does not make the expenditure allowable for capital allowances (and therein income/corporation tax relief).


A good example of this is the Disability Discrimination Act (DDA) which required service providers from 1 October 2004 to make 'reasonable adjustments' to their premises to tackle any physical features that prevent disabled people from using their services. Normal tax rules apply and further guidance can be found here.


This means claims for items as ‘plant’ under the capital allowances rules will need to be considered on their own merits and circumstance.


IT Infrastructure


Whether you lease or buy your IT equipment (including visual conferencing) we would normally expect it to be allowable in full. This is because lease rentals should be allowable and IT equipment such as computers, telecommunication systems and audio/visual are all generally accepted items of ‘main pool’ plant for the purposes of capital allowances.


Sliding/internal screens


A screen that is designed to enclose a space and remain permanently in place is likely to be challenged by HM Revenue & Customs and treated as Structures and Building Allowances (SBAs); however, screens that are moveable or perform another core function for the purposes of the businesses trade may qualify as plant.


In the case of Jarrold v John Good & Sons Ltd. 40TC681, moveable partitions were held to be plant. The partitions were part of the setting but were not part of the premises in which the trade was carried on. The Commissioners found as a fact that as a matter of commercial necessity the partitions had to possess mobility and flexibility for the day to day running of the business. They were apparatus with which the company carried on its business.


In the case of Wimpy International Ltd v Warland (Inspector of Taxes); Associated Restaurants Ltd v Warland (Inspector of Taxes) - [1988] STC 149 the fixed seating (including privacy screens) were accepted items of plant. In the case of Leeds Permanent Building Society v Proctor 56TC293 the decorative screens used for window displays were held to be plant.


Localised and enhanced air-filtration


If your new air filtration systems are installed or become part of the buildings existing air-condition system they will likely qualify for ‘special rate’ pool treatment as an ‘integral feature’. If the assets are free standing and/or retain a separate identity from the main building’s air-conditioning system you should expect to claim ‘main pool’ treatment.


Security/health screening pods


These can vary vastly in sophistication and construction. Floors, walls and ceilings within separate rooms or annexes that are built to house specialist equipment are only ever likely to qualify as plant on a piecemeal basis with the structure eligible for SBAs.


However, if the specialist equipment is housed in standalone units that retain a separate identify (e.g. pods/booths) a claim should be possible for 'main pool' treatment on the basis they are ‘processing equipment’, often portable and not part of the building.


A useful reference point is the Inland Revenue letter to the Football League, on 25 January 1991 following the Taylor Report. Amongst the items listed as eligible for plant include Turnstiles and spectator counting equipment.


If you use a less sophisticated method to screen staff or customers (e.g. gazebo, tent, or hut) then you may also be entitled to claim plant and machinery allowances and further details are included below.


Outdoor hospitality and entertainment


Many businesses in the hospitality sector have made great efforts to create innovative and friendly outdoor spaces to meet unique circumstances and the very unpredictable British weather; including: -

  1. Gazebos, tents, and huts

  2. Seating

  3. Screens and dividers

  4. Sound and communication system

  5. Lighting and power

Permanent additions to (5) may have to be treated as ‘special rate’ as opposed to ‘main rate’ but otherwise most of the above should qualify as ‘main rate’ plant in full.


HMRC has detailed guidance on when it accepts shelters and huts as plant and the case of Mrs CA Andrew v HMRC TC 799 [2010] held that a gazebo in the grounds of a pub (used for customer smokers following a change in law to be outside) was plant.


Note: If the business has unused Annual Investment Allowance (up to £1million) any expenditure that qualifies for either ‘main rate’ or ‘special rate’ pool plant and machinery may be written off in full (i.e.100% Yr.1 deduction). If there is no AIA, the expenditure will be spread over several years depending on the relevant rate (18% and 6% respectively). SBAs can qualify for up to 3% per annum (i.e. spread equally over 33yrs+)


If you would like more details on any aspect of the above, or have a question on the tax treatment of your expenditure, please contact us.


#covid #taxrelief #capitalallowances

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