This guide provides a summary of the type of expenditure which may qualify for capital allowances in farming businesses and outlines some farming-specific points to consider.

At a glance

  • The trade of farming is a Qualifying activity for capital allowance purposes.
  • Care is required when analysing capital expenditure incurred by farmers as the distinction between Qualifying and non-qualifying expenditure is not always straightforward.  
  • The Capital Allowances Act 2001 (CAA 2001) prevents plant and machinery allowances being available in respect of expenditure on buildings, structures and land. There are exclusions to this, including: 
    • Integral features.
    • 'List C' items (see Overview). 
    • Expenditure incidental to the installation of plant and machinery (see Overview). 
  • Where plant and machinery allowances are not available, consideration should be given to the availability of the Structures and Buildings Allowance

Overview

General plant and machinery

Farming businesses often invest in items of plant and machinery of a general nature, which would usually qualify for capital allowances. Examples may include: 

  • Lorries, vans, tractors, trailers, fork-lift trucks and other agricultural vehicles or machines.
  • Computers and computerised equipment.
  • Free-standing heaters and air conditioning units.
  • Office equipment & furnishings.
  • Fitted bathrooms, toilets, showers, kitchens & furnishings in office and staff accommodation used in the business.

'List C' items

  • The Capital Allowances Act 2001 (CAA 2001) prevents plant and machinery allowances being available in respect of expenditure on buildings, structures and land. 
    • CAA 2001 s.23 lists a number of items which are not affected by the exclusion of plant and machinery allowances buildings, structures and land. 
    • The legislation does not say that an item in List C is definitively plant. An item in List C has to pass the normal tests for being plant in common law before allowances are due.
  • List C includes:
    • Slurry pits.
    • Silage clamps.
    • Silos for temporary storage
    • Storage tanks.
    • Manufacturing or processing equipment; storage equipment (including cold rooms).
    • Washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.
    • Computer, telecommunication and surveillance systems (including their wiring or other links).
    • Refrigeration or cooling equipment.
    • Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
    • Burglar alarm systems.
    • Partition walls, where moveable and intended to be moved in the course of the qualifying activity.
    • Any Glasshouse constructed so that the required environment (namely, air, heat, light, irrigation and temperature) for the growing of plants is provided automatically by means of devices forming an integral part of its structure.
    • Cold stores.
    • Moveable buildings intended to be moved in the course of the qualifying activity.
    • Pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits.
    • Towers to support floodlights.

Buildings and structures

  • Where expenditure is incurred on alterations to existing buildings or land which is incidental to the installation of plant and machinery, that expenditure also qualifies for capital allowances. 
  • Where plant is moved from one site to another, associated expenditure is treated as being expenditure on the plant and machinery such that it would qualify for capital allowances. 
    • This would not apply if the expenditure on removal and re-erection is allowable as a deduction in computing profits.
  • Where expenditure is incurred in respect of buildings or structures, care should be taken to identify Integral features which may qualify for plant and machinery allowances.
  • Where plant and machinery allowances are not available, the Structures and Buildings Allowance may be relevant.

Shares in plant and machinery 

It is not uncommon for farmers to buy a share in items of plant with other parties to mitigate the cost. 

  • Plant and machinery allowances are available in shares of assets with the part share acquired being treated as a separate asset.

Caravans 

HMRC allow plant and machinery allowances on caravans provided by farmers to house farm employees even if the caravans occupy a fixed site and are used solely for residential purposes. This treatment applies only to farmers. It does not apply to any other cases.

Pig farmers  

In 2010, HMRC published  'Revenue and Customs Brief 03/10: Guidance on plant and machinery capital allowances for the pig industry'.

This gives a number of examples of items which would qualify for plant and machinery allowances in that context (there is some duplication with 'List C' items above):

  • Slurry storage systems, including for example, slurry storage tanks (whether above or below ground), any reception pit and/or effluent tank and/or channels and pipes used in connection with the slurry storage tank.
  • Small scale slurry and sludge dewatering equipment.
  • Rainwater harvesting and filtration equipment.
  • Gutters and associated piping for carrying rainwater harvested for business use.
  • Sewerage systems designed to meet the particular requirements of the business.
  • Silos for temporary storage.
  • Concrete pad surrounded by low-level barriers for the temporary storage of manure.
  • Storage tanks.
  • Moveable pig tents, pig arcs, transportation crates, weighing and handling equipment.
  • Monitoring systems (including telemetry) for monitoring temperature, humidity, lighting, water and food levels.
  • Water meters and monitoring equipment, including flow meters and water management software.
  • Feed systems (whether or not automated).
  • Slatted flooring areas (as internal parts of a slurry system).
  • Moveable, adjustable pen dividers.

A note from HMRC on claiming expenditure on items used in a mixed-use dwelling house.   

"The guidance in relation to pig farmers assumes they are carrying on a trade. The prohibition in section 35 CAA 2001 (Editorial note: you cannot claim capital allowances in relation to a dwelling house that is used for property letting) is not usually in point.  

A farmhouse or a cottage may indeed be a dwelling-house, plant or machinery in those buildings is not prohibited from qualifying for allowances simply because they are dwellings. 

So if the farmer incurred capital expenditure installing toilets showers etc in a bath or shower room for use solely by employees or incurred expenditure on plant and machinery, such as kitchen fittings furnishing and cookers etc to create a dedicated staff kitchen, then regardless of whether the bath/shower room was in the farmhouse or a separate cottage or indeed in a ‘commercial building’ the expenditure would qualify.  

In these situations, we are assuming that the expenditure was wholly for business purposes and there is no element of non-business use. Where there is mixed-use (business and non-business) then all the facts would have to be considered to determine what amount (if any) would qualify."

Editorial notes: HMRC's guidance here is specifically addressed at pig farmers, but the same principles apply to any business use where the nature of the job is such that an employee needs to use an employer's facilities.

Where capital expenditure is incurred on equipment that is provided for staff accommodation and staff are paying rent, it is suggested that you agree an apportionment of any capital expenditure with your tax office.

 

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