Capital Allowances: Potato storage facility is plant

In JRO Griffiths Ltd v HMRC [2021] TC08203, the First Tier Tribunal (FTT) found that a potato storage facility was both a silo for temporary storage and a cold store. It was plant and was eligible for capital allowances.

A person engaged in Qualifying activities can claim capital allowances on capital expenditure that qualifies as Plant and machinery if it is used in that qualifying activity.

• S.23 CAA 2001 (on list C) includes cold stores and silos provided for temporary storage on the list of expenditure not excluded from capital allowances through being a building or structure.

JRO Griffiths Ltd (JRO) incurred capital expenditure of £319,483 on the construction of a warehouse to store potatoes.

• JRO is a specialist in providing potatoes to the crisp industry.
  • Due to being made up of 70-80% water, crisping potatoes have to be dried and kept in a controlled environment. This maintains a consistent quality year-round with no condensation or variation in sugar content, to meet the demand and quality requirements of the main crisp manufacturers.
  • Poor quality potatoes fetch lower prices and affect the bonuses received by JRO from customers.
• The warehouse was designed by a specialist company with computerised air and temperature control, a separate chamber to mix inside and outside air, special insulation and cladding and powder floated reinforced concrete floor.
• The additional engineering requirements of the store meant that the cost was about £300,000 compared to around £55,000 for a general-purpose warehouse of the same size.
• JRO claimed Plant and machinery capital allowances on the costs of constructing the warehouse.
• HMRC enquired into the claims and issued Closure Notices disallowing the capital allowance claims on the basis that the store was the premises or setting for JRO’s trade and not the apparatus with which it was carried out.

The FTT allowed the appeal:

• The store was a building or structure under s.21 and 22 CAA but was a silo for temporary storage so was plant and qualified for allowances.
  • The store was not the setting for JRO’s trade but an integral part of how they carried out their qualifying activity.
  • Following an earlier FTT case, the judges followed the meaning of silo from the shorter Oxford English Dictionary (OED) of  “…a cylindrical tower or other structure built above ground for [storing grain, roots, etc]”.
  • They did not accept HMRC’s attempt to narrow the definition according to the type of crop being stored, specifically to grain, fodder etc by using the online OED definition or to define ‘temporary’ as seven days or less. Had Parliament intended temporary to mean such a short period it would have been defined as such in the legislation. Storing from September to July met the definition of temporary.
• Whilst their decision did not rest on it, the FTT considered whether the warehouse was also a cold store and found that it was.

Useful guides on this topic

Plant & machinery: Allowances
What capital allowances are available on plant and machinery? How do you calculate them? What are qualifying activities?

What expenditure qualifies for plant & machinery allowances?
What is plant and machinery? What expenditure qualifies as plant and machinery? What is treated as part of a building?

What are qualifying activities for capital allowances purposes?
What activities qualify for capital allowances? What activities are excluded?

Structures & Buildings Allowance (SBA)
Who can claim Structures and Buildings allowance? What expenditure is eligible? How to make a claim?

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?

External link

JRO Griffiths Ltd v HMRC [2021] TC08203