This article was first published in Farm North East

Recent years have seen a number of claims for capital allowances by taxpayers rejected by HMRC. Several of these claims have resulted in appeals to the First Tier Tribunal (FTT) with both the taxpayer and HMRC enjoying equal levels of success.

Two cases of particular note were May v Commissioners of the Inland Revenue (CIR) and JRO Griffiths v The Commissioners for HMRC. Before discussing these cases, it is worth considering how agricultural buildings have evolved in response to demands from supermarket chains and food processors.

The farming and food production sectors build and operate buildings that have developed over time from simple storage facilities to complex and technology-advanced bespoke buildings. These types of assets have gone beyond merely protecting a crop or food processing ingredient from the external environment. The structural components, internal finishes, computerised ventilation and temperature control systems, along with the mechanical and electrical installations, should not be viewed as individual elements of a large building, but as parts of a larger machinery asset used by the taxpayer in the course of their trade.

The May v CIR (2019) case involved the taxpayer incurring expenditure on a grain store with bespoke grain handling machinery, along with building design features that are particular to the storage of grain products. The building was constructed with the sole purpose of handling and storing grain on a temporary basis. After examination of the facts from both the taxpayer and HMRC, the tribunal decision was that the grain store was a silo and therefore fell within the definition of “plant” for the purposes of claiming capital allowances and qualified for relief.  

The JRO Griffiths v Commissioners for HMRC (2021) case centred around a claim for capital allowances that was denied by HMRC, in relation to the expenditure incurred on the construction of a potato store. While the potato store looked like a standard agricultural warehouse, it was in fact a specialised facility for the storing and preservation of potatoes to be used in the production of crisps. As well as having a structural design that aided in the drying and storage of the potato crop, it also facilitated the introduction of gases used to preserve the potatoes prior to delivery to the crisp manufacturer. In order to keep the potatoes in prime condition their moisture content and temperature was controlled and kept at a constant over a period of months prior to sale. The quality of the potatoes determined their value and ultimately the cost the crisp manufacturer would pay for them.

As with the May v CIR case, the tribunal agreed with the taxpayer and concluded that the potato store building and the equipment used in the process was a silo; the result being that all the expenditure incurred on the construction of the potato store qualified for capital allowances as “plant and machinery”.

In both the May and JRO Griffiths cases, HMRC presented the argument to the tribunal hearings that neither the grain, nor the potato store buildings fell within the definition of a silo. However the tribunals accepted the Oxford English dictionary definition of a silo in both cases and rejected the restrictive definition presented by HMRC.

A particularly interesting outcome of the JRO Griffiths case relates to the issue of whether the potato store also qualified as a cold store. While HMRC accepted that a constant temperature in the potato store was a requirement in terms of quality of the potatoes stored, the taxpayer’s counsel successfully argued that a cold store did not necessarily require mechanical refrigeration equipment to be installed. The induced cooling within the potato store was achieved through a computerised supply fan system that circulated air throughout the building.  The tribunal agreed that the temperature ranges were cold enough for the building to be regarded as a cold store and that mechanical refrigeration should not be a requirement for it to be considered as such. The Tribunal’s decision was therefore that the potato store operated as a cold store.

While HMRC did not appeal the May v CIR decision, it is very likely that this assisted in the JRO Griffiths case by failing to restrict the definition of a silo to the storage of grain.

These two cases set an interesting precedent for capital allowances claims on farming and food production buildings, and what type of expenditure may in fact qualify for the tax relief. If you would like to discuss any capital allowances claims you think you may qualify for, don’t hesitate to get in touch with me, another member of our specialist Construction & Property Incentives team, or your usual Johnston Carmichael contact.