Obtaining capital allowances (tax relief) when investing in long term assets (those which are expected to stay in use by the business for longer than 12 months) can be a minefield!

Claiming capital allowances means you can deduct part, or all of the costs of the asset from your profits, arriving at a lower taxable profit and therefore less tax to pay.

There are however various types of capital allowances, with different rules and criteria, and some assets, in particular farm sheds and buildings, can qualify for a number of different allowances depending on their components.

Structures & Building's Allowance (SBA)

Structures & Building's Allowance provides tax relief on the costs of physically constructing new non-residential structures and buildings for use in the day-to-day trade. This also includes any fees for design and preparing the site for construction. A new farm shed, for example, would be eligible for SBAs which is unfortunately a relatively low level of relief for a construction of relatively high cost.

Tax relief is given at 3% per year, with the relief given at the date the building is first used.

Annual Investment Allowance (AIA)

Some components of a building, such as silage and slurry handling facilities, may qualify as plant and machinery (P&M) and therefore attract 100% tax relief up to a £1m limit. HMRC has stated that storage tanks, both above and below ground, qualify as plant and machinery. Therefore 100% relief is available as long as expenditure is within the Annual Investment Allowance (AIA) of £1 million. For those trading through companies, a 130% super deduction is available until 31 March 2023 on purchases of brand new plant and machinery.

A further complication is that the tax position regarding a roof or cover over the store is not as clear. If HMRC considers that the roof is not integral to the operation of the item, they will restrict allowances on this part of the expenditure to SBAs of 3%.

Integral Features (IF)

In general terms, Integral Features are items of capital expenditure which are integral to a building/structure. This includes electrical and cold water systems, ventilation systems and external solar heating (however, the list is extensive.) Both P&M and IF receive AIA on expenditure of up to £1 million per year. If the expenditure is above this, then a further annual writing down allowance (WDA) of 18% and 6% is given to P&M and IF respectively.

There is a lot to consider in terms of capital allowances, so it is important to get in touch with us if you have any upcoming projects to discuss what tax relief may be available - it isn't as straightforward as it may first seem!

By Callum Hind (Qualified Accountant)

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