PRACTICE MAKES PERFECT NO . 8
PRACTICE MAKES PERFECT NO . 8
at a lower rate for integral features , so the more integral features you can get 100 % AIA on the lower your tax bill will be . Just watch out when the Government changes the threshold for AIAs in the middle of the tax year – when this happens , you will need to identify which assets are acquired before , and after , the change .
PLANT AND MACHINERY To qualify as plant and machinery , the expenditure has to :
• be kept “ for permanent employment in the business ”: in other words , this excludes stock you retail or expendable equipment with a life of less than two years ;
• and function as “ an apparatus employed in carrying out the activities of the business ” and not as part of the premises in which the business is carried on .
The second point needs a bit of unpacking . Whether something consists of the apparatus used in carrying out the business or the business premises is
surprisingly hard to pin down in case law .
In one memorable case , Benson v The Yard Arm Club , a company opened a floating restaurant on an old ship and claimed plant and machinery capital allowances on the ship , arguing that it was the restaurant ’ s unique selling point . This was refused in the courts : the ship was the structure within which the restaurant business was run . In the words of the Court of Appeal judge , he could see no distinction between “ a restaurant on the Thames and a fish and chip shop in Bethnal Green . Both act as premises in which the trade is carried on .”
The basic principle is that anything which can reasonably be expected to form part of your practice building – for example , walls , partitions , ceilings , floors , doors , windows and lighting – should be considered to be premises and not plant . There might be exceptions if they are moveable , and / or designed to fulfil a special function . If this is the case , consider speaking to a tax advisor .
The UK ’ s tax law around the kinds of assets that qualify as plant and machinery is very specific , and sometimes counterintuitive . Sections 21 to 23 of the Capital
Allowances Act 2001 sets out a list of things which definitely are , and which definitely aren ’ t , plant and machinery . However , if your refitting costs are large enough to send you scurrying to the tax books , you may sleep better if you speak to a professional accountant or tax advisor .
INTEGRAL FEATURES If the above criteria for plant have let you down , don ’ t despair ! Special rate allowances are available on assets which are integral to buildings , including electrical systems ( including a lighting system ), cold water systems , space or water heating systems , powered systems of ventilation , air cooling or air purification , any floor or ceiling in such a system , and external solar shading .
Electrical systems are not defined in legislation , so the taxman will be looking to the ordinary meaning of the term : “ a system for taking electrical power ( including lighting ) from the point of entry to the building or structure , or generation within the building or structure , and distributing it through the building or structure , as required .”
It ’ s worth considering what you ’ re putting the electrical systems in for . If an electrical system is installed purely to support qualifying plant and machinery – burglar alarms or an x-ray machine , for example – the cost of the electrical system counts as plant and machinery , and will be eligible for the higher plant and machinery allowances . One supermarket chain got plant and machinery allowances on nearly all their electrics , since most of it was there to run freezers for food storage . They even successfully argued that their lighting had to be bespoke , so that also qualified for plant and machinery allowances .
RECORD-KEEPING One final piece of advice : keep clear records , and separately identify each item of expenditure .
Rather than amalgamating all your costs under one-line item called “ practice fittings ” in your tax return , you will have a much better chance of claiming capital allowances successfully if you break down your costs into specific headings – treatment equipment , lighting , and electrical wiring for air conditioning , x-ray machines and plumbing . Likewise , when you claim for a revenue deduction on repairs , be prepared to back up your claim with invoices and a breakdown of the works carried out if and when the taxman asks you for details .
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