Chidell’s tips on plant and machinery

Author and publisher Ray Chidell shares some of the key points of his recent Claritax compendium, the ‘A-Z of Plant & Machinery’

The definition of plant and machinery is notoriously difficult but is relevant for nearly all business clients and for those investing in property. Ray Chidell’s recently published A-Z of Plant & Machinery,  available from the AccountingWEB shop analyses more than 200 categories of expenditure, looking at legislation, case law, and HMRC guidance. The following extract explains two example plant and machinery allowance (PMA) categories.

Treatment checklist

1.  Statutory rules specify some items that qualify as plant (eg integral features).
 
2. Machinery qualifies in its own right (HMRC give the term a broad definition).
 
3. Items in List C at CAA 2001 s23 do not necessarily qualify, but will usually do so – check case law precedents and HMRC guidance (some concealed in odd places).
 
4. Items in Lists A and B at s21 and s22 respectively do not qualify, unless they are rescued by s23.

Letter boxes

Although no allowances are due for doors, there is no guidance on whether or not a letter box should qualify as plant or machinery.

But the flap through which letters may be posted could have an analogy with the treatment of door handles, about which HMRC has written:

“A door handle would normally be an integral part of the door to which it is affixed, with the result that it would not qualify for PMAs. Any subsequent replacement of the door handle would then count as a repair of the door. However you should not in practice refuse a PMA claim where this is the treatment adopted in the computations. Some mechanical handles can in any event constitute machines in their own right.”

If the letter box is simply part of the cost of the door then no allowances are due, but if it is paid for separately there is a possible argument that a claim should be allowed.

If there is an actual box into which post from outside is dropped through a flap, then there is a somewhat stronger case for arguing that this box is separate from the door and that allowances should be given.

Legislation: Capital Allowances Act 2001, s21 (list A, item 5).

Guidance: CA 21200

 

Lifts and lift shafts

The cost of “a lift, an escalator or a moving walkway” now qualifies for plant and machinery allowances under the rules relating to “integral features”. This renders irrelevant the various earlier case law discussions on whether or when lifts or their wiring would qualify as plant or machinery.

It seems possible to argue that the lift can in fact qualify under general principles, thus attracting a faster rate of write-off, on the grounds that a lift is undoubtedly a machine. The statute does not appear to give precedence to one interpretation or the other but as the mention of lifts at s33A is so specific, it is thought that a court would take the view that the “integral features” rules take priority.

Certainly, this is the line taken by HMRC who have written to the author as follows:

“I don't think we would argue with you that a lift is machinery. However we take the view that the legislation is clear that lifts are integral features and expenditure on integral features has to be allocated to the special rate pool. So in our view the person making the claim does not have a choice, it may be qualifying expenditure on machinery but more specifically it is qualifying expenditure on a lift which is an integral feature and that qualifying expenditure has to be allocated to the special rate pool.”

HMRC states that expenditure on the provision of wiring for a lift should be treated as part of the cost of the lift itself.

The treatment of a lift shaft is different. This is clearly incorporated in the building and, initially, allowances are thus denied by virtue of s21. List A specifically refers to “shafts or other structures in which lifts, hoists, escalators and moving walkways are installed”. There is nothing in list C at s23 to rescue the expenditure incurred on a lift shaft.

In an existing building, as opposed to one that is being newly built, the cost of a lift shaft will nevertheless be allowed as incidental to the installation of the lift itself (s25).

Where allowances are claimed by virtue of s25, the capital allowances rules operate as if the incidental expenditure were expenditure on the provision of the plant or machinery. The cost of the lift shaft, where it qualifies by virtue of this provision, is thus treated as part of the cost of the plant or machinery itself. It follows that the cost of the lift shaft will in such a case be treated as expenditure on integral features and will accordingly be allocated to the special rate pool.

Legislation: Capital Allowances Act 2001, s21 (list A, item 5), s25, s33A

Guidance: CA 21190

Extracted from:  ‘A-Z of Plant & Machinery’, by  Ray Chidell & Ian Sutton (Claritax, 2012) ISBN: 978-1-908545-06-0. Availalble, priced £68.50 from shop.accountingweb.co.uk