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Mechanic AccountingWEB Guidance on plant and machinery allowances causes confusion
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Guidance on plant and machinery allowances causes confusion

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While new guidance on making claims for plant and machinery allowance aims to clarify potential errors, Aubrey Calderwood looks at how its complexity may instead cause more confusion. 

31st May 2024
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On 7 May 2024, HMRC published a suite of four documents offering guidance to taxpayers in relation to making claims for plant and machinery allowances (PMAs). 

The second document, where the bulk of the guidance is detailed, sets out what the “common areas of error in claims for plant and machinery allowances” are. The rationale for HMRC publishing the guidance was that “HMRC have found some areas where there is a particular risk a plant and machinery claim may be inaccurate. We want to share information to help you manage those risks.”

Understanding the guidance 

So far, so good and we are of the view that anything that provides clarification for taxpayers is to be welcomed. However, when you then immerse yourself in the detail of the second document of where those errors occur, you realise just how complicated the capital allowances tax code actually is and how difficult it is to interpret for the average taxpayer.

The main benefit for taxpayers in following the guidance may be in minimising the potential of penalties being levied if there are inaccuracies in their tax returns. 

HMRC’s compliance check note CC/FS7c sets out penalties for “careless inaccuracies relating to tax avoidance”. However, where a taxpayer has sent HMRC an inaccurate return, but they have taken “reasonable care” in its preparation, they will not incur penalties. 

So, for any taxpayer who is investing in plant and machinery, whether regularly or infrequently, this guide provides a useful summary of common pitfalls and how to avoid “careless inaccuracies” and associated penalties.

The detailed guidance covers some 20 areas where taxpayers are regularly making erroneous claims. These range from what “qualifying expenditure” is, to PMAs relating to capital contributions, and transactions between connected persons. 

The guidance in part 2 alone runs to some 23 pages so it is beyond the scope of this article to go into each area in detail and provide commentary on all of them. However, a few points do stand out for further examination.

Issues

The guidance relating to “buildings and structures”, “fixtures” and “when fixtures change ownership” are all related and, in our experience, cause taxpayers and their professional advisers alike considerable difficulties. We are of the opinion though that the guidance provides little help in establishing solutions to the issues raised. 

Take, for example, the guidance on “buildings and structures”:

“Business premises, structures, or settings will not usually be plant or machinery. Generally, these are not assets with which the business activity is carried on. They are the place or setting where the business activity is carried out. The fixtures section of this guidance tells you when you may be able to claim for expenditure on fixtures that are installed in a building.

“You cannot usually claim plant and machinery allowances for:

  • buildings
  • land and structures, for example, bridges, roads, docks

“You may be able to claim structures and buildings allowance instead. If your claim treats assets that are building or structural type items as plant or machinery, then providing an explanation with your tax return may reduce the need for us to contact you about the claim. Your explanation should include your view of the law your conclusion relies on. This may help show that you have taken reasonable care to get your claim right.”

To the “unsophisticated” taxpayer or their professional adviser – presumably the target audience of this guidance – this is at best unclear and, at worst, confusing. 

When you then analyse the following “fixtures” section of the guidance, as you are encouraged to do, matters don’t become much clearer.

“To make a claim under the fixtures legislation you must meet all three of the conditions below:

  • you have incurred capital expenditure on providing plant or machinery for your qualifying activity
  • when installed in or otherwise fixed to a building, the plant or machinery becomes a fixture
  • you have an interest in the relevant land at the time the plant or machinery becomes a fixture

“Where you are part of a group of companies, you will need to consider which company has the lowest interest in the land and which company incurs the capital expenditure to find who has ownership, or deemed ownership, for capital allowances purposes.”

Conclusion

So, in summary, whilst HMRC’s intention in publishing this set of guidance notes may be laudable, in our view many of the points made may only serve to compound the confusion, and thus errors, that are already being encountered. 

This would be especially true if a taxpayer were to use the notes for anything other than an aid to understanding. Not that they were ever intended to be, but they are still no substitute for taking proper professional advice. Caveat emptor.

Replies (2)

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By richard thomas
31st May 2024 14:54

Thanks for this very moderately expressed summary of the document, especially the second.

What a farrago of ill-targeted, ungrammatical, unclear and highly confusing verbiage the second document is. What was needed was a clear statement by HMRC (sorry about this contradiction in terms) of the areas where people go wrong, making it clear what they get wrong and what they should do to prevent errors, and to the extent it is aimed at "businesses" (they mean people who run businesses or companies) the only message to them should be to consult an accountant or other specialist.

I suspect though that the number of businesses that are contemplating expenditure on building a road, a bridge or a dock and who plan to do this without any professional assistance is low.

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By More unearned luck
31st May 2024 18:25

Physician heal thyself.

HMRC are attempting to alert taxpayers to common errors in CA claims, so referring readers to Compliance checks: penalties for careless inaccuracies relating to tax avoidance CC/FS7c is to sow confusion. Wouldn't a reference to CCFS7a be more pertinent?

Regarding the guidance's definition of 'disposal', how can the mere wearing out of a machine amount to its disposal?

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