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HM Revenue and Customs Brief 24/12


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Issued on 17 August 2012

Capital allowances: sampling as a basis of claim - fixtures

This Brief asks for comments on draft revised guidance explaining sampling as a basis of a claim for capital allowances, in respect of qualifying expenditure on fixtures.

Any comments should be given to HM Revenue & Customs (HMRC) by 31 October 2012. Relevant contact details are included at the end of this Brief. HMRC will consider any comments received and will publish this revised guidance in the Capital Allowances Manual as soon as possible after 31 October 2012.


For a number of years HMRC has accepted in principle that sampling may be used as a basis of a claim for Plant and Machinery Allowances (PMA) in respect of expenditure incurred on qualifying fixtures. The current guidance on sampling is at CA20075. This states that:

'It is not possible to provide hard and fast rules on the method of sampling to be adopted as the facts and circumstances of each case will be different. However, if sampling is appropriate, statistically acceptable sampling methodologies must be adopted'.

However, since this guidance was issued many businesses have submitted sampling proposals that were not statistically acceptable, largely because the sample size was too small. This gave rise to significant risks that PMA claims were inaccurate, meaning that businesses could have been paying too much, or not enough, tax.

This Brief gives details of the proposed new guidance that will replace the current guidance. It aims to give further help on sampling which will limit the level of uncertainty and give reassurance to both business and HMRC that the estimate of qualifying expenditure on fixtures derived from sampling is of acceptable accuracy.

The proposed revised text of this guidance is as follows:

'CA20075 - PMAs: introduction: sampling as a basis of claim: fixtures'

Where a business undertakes large programmes of work on their properties on a regular basis and the nature of the work is very similar, HMRC will, in certain circumstances, accept claims for plant and machinery allowances for expenditure incurred on qualifying fixtures, based on a detailed breakdown of expenditure in a sample of those properties. The 'qualifying proportion' of expenditure in the sample may then be applied to the other properties. For example, sampling may be appropriate where a company acquires a number of similar sized retail units and fits them out in their 'corporate style' to create a standard type of shop.

Sampling is acceptable in principle in appropriate cases, both as a method for preparing PMA claims and of checking them.

When is it appropriate to use sampling?

Sampling should be considered where:

  • the overall size of the population (the total number of properties or units) allows for a reasonable sample size to be drawn from it (HMRC does not consider any sample size that is less than 15 to be reasonable)
  • there would be a considerable and demonstrable burden involved for the business in analysing the expenditure for the whole population
  • the nature of the works undertaken is reasonably similar across the whole population, or appropriate stratified sampling will be undertaken (see below under the heading 'Categories')


When estimating something using a sample drawn from a population, a confidence interval can be used as a measurement of how good, or how accurate the estimate (often an average) is. A confidence interval gives a likely range in which the 'true' value will lie. It is always given together with the confidence level, which is the likelihood that the 'true value' will lie within this range. The confidence level is often expressed as a percentage.

If the gross capital expenditure for a claim does not exceed 25 million

HMRC require that the capital allowances qualifying proportions derived from a sample are within a 95 per cent confidence interval of plus or minus (+/-) 5 per cent of the gross expenditure. In other words, if the estimated qualifying proportion of gross expenditure is 40 per cent, we would expect that the true value would lie within a range of 35 per cent to 45 per cent of the gross expenditure.

If the gross capital expenditure for a claim is more than 25 million

HMRC require that the capital allowances qualifying proportions derived from a sample are within a 95 per cent confidence interval of +/- 5 per cent of the qualifying proportion.

For example:Issued 17 August 2012

  • if the estimated qualifying proportion of gross expenditure is 40 per cent, the range would be from 38 per cent to 42 per cent (5% of 40% is 2%, so the range would be +/- 2% of the estimated qualifying proportion of 40%)
  • if the estimated qualifying proportion of gross expenditure is 60 per cent, the range would be from 57 per cent to 63 per cent (5% of 60% is 3%, so the range would be +/- 3% of the estimated qualifying proportion of 60%)


In many cases there may be considerable diversity across the population. For example, retail units may be categorised as 'superstores' or 'high street stores' and the work carried out might be new build, extensions or re-fits. There could be substantial variation in the proportion of qualifying expenditure across the different categories.

Additionally, standard programmes of work on outlets can vary significantly with regard to the proportion of qualifying expenditure depending on the location of the property. For example, where some of the outlets are located in mainline train terminals or airports the work requirements may be far more stringent than for those in other locations.

HMRC will not consider sampling unless the nature of the work undertaken is shown to be reasonably similar across units, because otherwise it will be almost impossible to achieve the accuracy required.

In cases where there are different categories of work it may be possible to reduce the variation in qualifying expenditure by drawing separate sub-samples from each category. This is sometimes referred to as stratified sampling or stratification.

Similarly, if there are one or two projects within a total population that are markedly different, it will probably be necessary to exclude these from the sampling exercise and submit individual claims.

Sample size

A minimum sample size of 15 units is required for each identifiable category (stratum).

If the number of units being analysed is 15 or fewer then all the data should be analysed and sampling is not permitted.

It is important to note that this is a minimum figure and that in most cases a larger sample will be necessary to meet HMRC's accuracy requirements stated above.

Sampling method

HMRC require random sampling, where every unit in the population has a chance of being selected. We will need to see evidence that the sample has been chosen randomly. 'Representative' sampling is not permitted.

Information to be provided

Ideally, the sampling exercise should be discussed with the business before a PMA claim is submitted. This is to ensure an adequate sample is drawn to avoid the need for further sampling at a later stage. The business should set out the population information (number of units, level of expenditure), the method for selecting the sample and the method for estimating the qualifying proportion. The business should also undertake calculations to demonstrate that the proposed sample size is likely to meet accuracy requirements.

When the claim is submitted the following information must be supplied:

  1. A high level summary of the number of units in the population and the gross capital expenditure for both the population and the sample.
  2. A list of all the units by gross capital expenditure split by category.
  3. Details of the method used to select the sample - this needs to be demonstrably random.
  4. Estimates of the total 'qualifying proportion' and total qualifying expenditure for the population (or each category where appropriate) and how they were calculated from the sample results.
  5. Evidence that the estimate of the 'qualifying proportion' meets HMRC's accuracy requirements. (This requires calculating a confidence interval for the sample.) This is a crucial component of the claim.

Other issues

Finance Act 2008 introduced a new classification of 'integral features' of a building or structure, expenditure on the provision or replacement of which qualifies for writing-down allowances at the special rate. Guidance on 'integral features' can be found at CA22300. For qualifying expenditure incurred from April 2008 it will be necessary for businesses to calculate separate percentages for expenditure on:

  • 'integral features' and, where appropriate, any other fixtures, such as 'long-life assets' (see CA23720), that qualify for writing-down allowances at the special rate
  • other fixtures that qualify for writing down allowances at the main rate

Businesses do not have an automatic right to use sampling. HMRC reserves the right to examine all the records where appropriate. You should therefore ensure that businesses are aware that they must retain all the underlying records relating to the whole population.

You should not agree, in advance, claims for future years based on an earlier year's sample. However, you may decide to examine claims to identify variances in accounting systems, spending patterns and the nature of work carried out from those previously examined. If there is little variance it may well be that no further enquiry would be necessary into that claim.

Similarly, you cannot automatically roll forward an earlier sampling methodology to similar projects in later years. However, you should be able to judge the extent of sampling required in the later years in the light of work done on the earlier project.

The relevance of earlier sampling work to later expenditure may be affected by changes in the underlying statutory provisions and related case law.

If the bulk of expenditure has been incurred before the end of the chargeable period then sampling discussions can begin between you and the taxpayer then. However, you must not agree the extent of sampling before the beginning of a chargeable period.

Sampling is not an appropriate way to arrive at the qualifying expenditure for PMA on property acquisitions. The part of the capital expenditure incurred on the property that relates to fixtures is found by apportioning the capital sum between the fixtures and the rest of the land (subject to the limit of original cost or a previous owner's disposal value). The apportionment is made under s562 CAA 2001 (CA12300) except where the purchaser and vendor decide to make a joint election under s198 CAA 2001 (CA26800) to fix the amount to be apportioned to the fixtures.

It will be necessary to look at each acquisition individually to establish whether an election under s198 has been made (from April 2012 an election under section 198 will be used to fix the price of fixtures in most property transactions). Additionally, where there has been a previous PMA claim in relation to the fixtures acquired the qualifying expenditure of the purchaser is limited to the historic cost of the fixture (CA26400). Again, each property will need to be looked at individually to establish the maximum amount that may be claimed.

The above guidance applies only to fixtures. It does not apply to chattels.

Appropriate cases may be agreed without reference to HMRC's Knowledge, Analysis and Intelligence (KAI) team, but KAI may be able to advise on sample sizes and techniques, where necessary.'

How to comment

Comments on this revised guidance may be sent to:

Caroline Newell
Room 64
3rd Floor
100 Parliament Street

By phone: 020 7147 2610

About the Author

Crown Copyright 2012.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2012-08-20 09:08:45 in Tax Articles

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