HM Revenue and Customs Brief 66/08
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Issued 29 December 2008
Capital allowances Finance Act 2008 changes: draft guidance and related
- seeks comments on draft guidance on the changes to the capital allowances
rules made by the Finance Act 2008
- incorporates new guidance on the capital allowances treatment of slurry
- gives details of new guidance on the application of section 35 CAA 2001 to
university halls of residence and similar facilities
The new guidance on all these matters will be incorporated into the published
Capital Allowances Manual in 2009.
1. Draft guidance on the Finance Act 2008 changes
Finance Act 2008 made a number of changes to the Capital Allowances Act 2001.
The main changes were:
- The introduction of a new Annual Investment Allowance (AIA), which is
effectively a 100 per cent allowance for business expenditure on plant and
machinery (apart from cars) of up to £50,000 a year. The AIA applies to
businesses regardless of size, and replaced the previous 40 per cent or 50 per
cent first-year allowances for small and medium-sized businesses.
- The introduction of a new writing-down allowance (a 'small pools
allowance'), allowing historic and future pools of plant and machinery
expenditure of £1,000 or less to be written-off immediately.
- Changes to the rates of capital allowances on plant and machinery from 25
per cent to 20 per cent for the main pool, and from 6 per cent to 10 per cent
for long-life assets in the new special rate pool.
- The introduction of a new classification of 'integral features' of a
building to apply to new and replacement expenditure, and which will attract
10 per cent allowances in the new special rate pool.
- The phased withdrawal of industrial and agricultural buildings allowances
- New payable tax credits for businesses that make losses attributable to
investment in environmentally beneficial plant and machinery.
HM Revenue & Customs (HMRC) undertook to release the draft guidance on the
changes for comment before the Capital Allowances Manual (CAM) was updated to
reflect the changes.
The draft guidance is now available for comment and consists of:
- new material
- existing material revised to reflect the changes
We also intend to make a number of minor consequential changes to the CAM,
but it is not intended to seek comment on these changes. In the main, the minor
consequential changes are simply changes to the percentage rate of writing-down
allowances and so on, where these are used in examples or appear in text
elsewhere in the CAM.
The draft guidance for the new and rewritten material can be found here (PDF
Any comments on the draft guidance should be made on or before 10 February
2. The capital allowances treatment of slurry storage facilities
The Nitrate Pollutions Prevention Regulations come into force on 1 January
2009. In October 2008, the Department for Environment, Food and Rural Affairs (DEFRA)
launched a national package of advice and support for farmers preparing for the
new regulations. Following this launch, HMRC have been asked to clarify their
approach to capital allowances claims on slurry storage facilities.
The Nitrate Pollutions Prevention Regulations update the UK's implementation
of the 1991 EU Nitrates Directive, which guides the use of fertilizers in
Nitrate Vulnerable Zones. The Directive requires there to be guidelines on the
timing and quantity of the land application of fertilizers. In part, this
necessitates the storing of slurry prior to its application. This Directive has
raised the profile and importance of this issue, but farmers may, of course,
need to store slurry for reasons unconnected with the Directive.
What is slurry storage?
The storage of slurry in England and Wales is dictated by The Control of
Pollution (Silage, Slurry and Agricultural Fuel Oil) Regulations 1991. There is
separate, but broadly similar, legislation in Scotland and Northern Ireland.
Using the England and Wales legislation by way of general illustration, this
defines a slurry storage system as including:
- a slurry storage tank, whether above or below ground
- any reception pit and any effluent tank used in connection with the slurry
- any channels and pipes used in connection with the slurry storage tank,
and reception pit or any effluent tank
'Slurry storage tank' includes a lagoon, pit (other than a reception pit) or
tower used for the storage of slurry.
The capital allowances position
Our view is that slurry storage systems located anywhere in the UK, which are
used for the temporary storage of slurry, qualify as plant or machinery for the
purposes of the capital allowances legislation.
However, any building or structure which is part of a slurry storage facility
does not qualify because it is specifically excluded by S21 CAA 2001 and does
not constitute plant or machinery.
See, for example, the case of Attwood v Anduff Car Wash Ltd 69 TC 575, in
which it was held that the structure housing a car wash was not part of a single
item of plant and machinery. Justice Carnwath explained that: 'It remains
necessary to apply the premises test in order to identify and exclude those
parts of the complex which function simply as premises, and which are therefore
For example, a slurry storage facility at a farm may include the following
- an above ground circular store
- a reception pit
- an open sided shed which provides shelter to the tank, preventing
rainwater from falling into the store - the circular store is situated inside
In this example the circular store and the reception pit are plant or
machinery and qualify for capital allowances. Any channels or pipes associated
with them also qualify. However, the shed is a structure and is therefore
specifically excluded from being plant or machinery.
Officers of HMRC should, in general, accept claims for plant and machinery
allowances in respect of slurry storage systems. Enquiries should be limited to
significant claims for systems which appear to differ from the components
described above, or facilities which include buildings or structures.
Annual Investment Allowance (AIA)
As slurry storage systems may generally be accepted as plant and machinery,
business expenditure on them will qualify for plant and machinery capital
allowances, including the new AIA. The AIA is, effectively, a 100 per cent
first-year allowance, capped at £50,000 a year, for business expenditure
incurred on or after 1 April 2008 (Corporation Tax) or 6 April 2008 (Income Tax)
on plant and machinery (other than cars).
3. University halls of residence and similar facilities: Application of
section 35 CAA 2001
This Revenue & Customs Brief also clarifies our view on the application of
CAA01/S35 (no capital allowances for plant and machinery used in a dwelling
house) to university halls of residence and similar facilities.
There is no definition of dwelling house in CAA01/S35 but guidance at CA11520
sets out our view on its meaning. It states that, amongst other types of
accommodation, university halls of residence are not dwelling houses.
We recognise that the provision of student accommodation has evolved since
expressing our view in CA11520 and so we will be updating our guidance to
We consider that 'communal' areas are not dwelling houses. Areas to which
tenants do not have access are also not dwelling houses. However, all other
areas are dwelling houses.
A student accommodation block has three floors, each with ten en-suite 'study
bedrooms' that are individually lockable. Each floor also has a kitchen and TV
room which are for the use of the ten occupants. The building has
air-conditioning equipment located in the attic and a boiler located in the
basement - only maintenance personnel have access to these areas.
In this example the kitchen and TV room are communal areas and not dwelling
houses. The stairs and corridors which give access to other areas are also
communal and are not dwelling houses. Tenants do not have access to the roof and
attic and so they are not dwelling houses. However, the individual study
bedrooms are dwelling houses.
This view extends to other types of multiple occupancy accommodation, such as
those provided to key workers.
There are several references to dwelling houses in CAA2001. The term appears
in Part 2 (plant and machinery allowances), Part 3 (industrial buildings
allowance) and Part 10 (assured tenancy allowances). Our view of dwelling houses
applies throughout the Capital Allowances Act.
Our guidance will be updated to reflect the above.
CT & VAT Capital Allowances
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Article Published/Sorted/Amended on Scopulus 2009-01-02 23:03:18 in Tax Articles