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Tax relief on land and buildings

First published in Farmers Weekly 1.6.2021, Simon Tapp advises on how care is needed to maximise tax relief on buildings and the equipment associated with them.

Can I claim tax on my new dairy unit?

The answer is yes, but at varying percentage rates, depending on the type of expenditure.

The devil is in the detail and the need to carefully analyse all supporting invoices.

When a business spends money on acquiring or constructing buildings, tax relief can be claimed through capital allowances, with expenditure classified as follows:

1. Plant and machinery This should include the milking parlour equipment, pre-cast (moveable) concrete panels, cubicles, feed barriers, silage clamps and slurry storage/handling equipment. The first £200,000 of expenditure qualifies for 100% tax relief under the annual investment allowance (AIA), with the balance securing 18% tax relief a year.

2. Integral features allowance (IF) Water systems and electrical installations typically fall under this category and qualify for 6% tax relief a year, although it is possible to claim AIA on integral features as in (1) above.

3. Structures and buildings allowance (SBA) If the expenditure on the buildings does not fall within (1) or (2), the costs may qualify for SBAs at 3% a year, which would include professional fees relating to design and construction of the site. Expenditure on renovating non-residential buildings and structures should also qualify for SBAs.

Furthermore, if a limited company is buying and using new plant and equipment, some of the costs could qualify for the 130% super deduction, which is available alongside the AIA, between 1 April 2021 and 31 March 2023.

Companies also benefit from a 50% super deduction on assets that would otherwise qualify for 6% writing down allowances in excess of the AIA. However, this is also only available to limited companies.

Anyone constructing a new building needs to consider the potential tax relief on the components within and look to apply similar principles.

For example, if a new grain store is simply a large shed that can also serve as a machinery store, thought needs to be given to maximising the AIA (and the 130% super deduction) on any grain handling equipment, with the balance qualifying for IFs and SBAs, in that order.

If, however, it is a specialist grain handling and drying facility, incapable of any other use, then the entire cost may qualify as plant, using the £200,000 AIA with the balance obtaining 18% relief a year.

With all of the above, thought needs to be given to the timing of the expenditure.

The dates when equipment is first brought into use, when physical payment is made and when any contractual agreement is signed can all affect the accounting periods in which tax relief can be claimed.

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