25 March 2019
On 6 November 2018, S.C May, a farming partnership, won an appeal against HMRC that the full cost of constructing a silo should be tax deductible (via capital allowances) as plant and machinery and not just limited to 20% of the cost, as previously allowed by HMRC.
The silo was a facility for drying and conditioning grain after it been harvested, and was ultimately sold by S.C May. HMRC contended that the silo principally consisted of a building which included drying, conditioning and grain storage facilities. The taxpayer argued that this particular silo was an exception to the rule in that it was a “silo provided for temporary storage” and, although acknowledging it was a building, should still qualify for capital allowances in its entirety because of the exception.
The case then boiled down to the question of whether the silo was a silo for temporary storage or if it was a grain store. HMRC contended that the silo was a grain store and not used for temporary storage, whereas the taxpayer argued the opposite.
The taxpayer said that storage of up to nine to ten months between harvest and sale is temporary storage, whereas HMRC argued that storage for such a long time cannot be temporary.
The tribunal considered that the storage of grain should be considered in the context of the business as a whole. Because the business is a farm and not the storing of grain, this was one part of the overall business process and the fact that it was stored for up to ten months was irrelevant in context. The taxpayer’s commercial interest was to sell the grain as soon as possible after harvesting it.
The case has been won in the First-tier Tribunal and so is not a binding president, and is subject to appeal by HMRC to the Upper Tribunal, where a decision becomes binding. However, HMRC have indicated that they will not be appealing this decision.
What this means for you
When considering constructing a grain store with drying facilities, the tax relief should be considered at the outset and with input from a specialist adviser. To achieve 100% tax relief on the construction costs, careful consideration should be taken in light of the above. This case does not mean that every building used as a temporary grain store will qualify for 100% tax relief, as a key ingredient in its success was the specialist, integrated nature of the facility, which was performing a function beyond simply being a building. If the conclusion is that the building doesn’t qualify as a silo used for temporary storage, the usual integral features – water, heating and ventilation systems – will qualify for capital allowances, along with the new buildings allowance (2% per annum tax deduction) on the structure.
Farms that have constructed silos in the past should check what capital allowances they have claimed on all the costs, as there may be scope to claim relief now and secure a potentially large tax saving or refund. There is no time limit for capital allowances to be claimed and such allowances, if eligible and the related plant is still in use by the business, can be entered into a capital allowance pool in the current tax year and written down allowances claimed.
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