The capital allowances claimed for a grain store demonstrate how sometimes whole buildings can qualify as plant.
Stephen May (TC06928) is an arable farmer, growing mostly cereal crops. He built a facility to dry and store his grain and claimed plant and machinery allowances (PMAs) for the whole cost. HMRC accepted the ventilation equipment in this grain silo qualified for PMAs, but that amounted to only about one-fifth of the total cost.
What was built
The facility was a steel framed barn with a concrete floor and three metre high walls. Piles of grain lay on the floor, separated by a permanent wall down the middle and a moveable barrier.
The ventilation equipment to dry the grain included an air inlet vent on one side of the building with an extract fan opposite to draw air across and out of the space. Sitting on the floor, protruding through the levelled piles of grain, were moveable vertical tubes (pedestals) with fans on top. When the outside air was dryer than the grain, a central control switched on the pedestal blowers, and the drawn-up air removed moisture from the grain.
Grain was held for up to nine or 10 months in this silo, then the facility was emptied and cleaned ready to receive the next harvest.
What did HMRC say?
HMRC’s capital allowances manual states: “Treat a grain silo as plant where, together with its attendant machinery, it performs a function in distributing the grain so that acts as a transit silo rather than a warehouse” (CA22050). But as practitioners will know, the HMRC manuals do not have the force of law, nor do they always accurately reflect it.
One incredible aspect of this case was that evidence was given in support of the taxpayer’s argument by Mr Doodney, who had worked for HMRC as a capital allowances specialist until 2015. While within HMRC he was asked to provide technical guidance on this claim for the silo costs, and he advised that the farmer’s case had merit. But he was told that HMRC’s policy was to “hold the line” that such structures were not eligible. So, he had produced a report stating that it did not qualify!
What does the law say?
Statute says that expenditure on a “building” (CAA 2001 s21) or a “structure” (CAA 2001 s22) cannot qualify for PMAs. However, either may qualify for capital allowances under case law principles as “plant” if the asset is (amongst other things) a “silo” provided for “temporary storage” (CAA 2001 s23, List C, item 28).
Both the taxpayer and HMRC agreed that this facility was a “building”, but they differed over whether it was a silo provided for temporary storage, and whether it was “plant”.
Was it a silo?
A “silo” is not defined in the legislation, so the parties agreed it took the dictionary meaning. They settled on a definition that a silo needed to have no purpose other than storage, and it could include any structure built above ground (not just pits, underground chambers or above ground cylindrical towers).
The tribunal found that this building was specifically designed, built, and used to store, condition, and maintain grain through a continuing process of aeration. The cost was much more than a general-purpose agricultural building, and its features made it unsuitable for other agricultural uses. The tribunal was satisfied that it was a silo.
Was the storage temporary?
There is no relevant statutory definition on the question of “temporary storage”. HMRC relied upon the only other reported capital allowances case about a silo (Schofield v R&H Hall Ltd (1974) 49 TC 538). There the grain was stored for up to seven days in transit (hence HMRC’s manual guidance). HMRC argued that this exceptionally short period was “temporary” whereas May’s nine or 10 months was “permanent”.
Unsurprisingly, the tribunal was unconvinced by this. It noted that silos could be used to store all sorts of commodities, some of which may be kept indefinitely (in effect, permanently). However, here the grain could not be kept for much longer than 9 or 10 months without deteriorating and was only held until it could be sold. As the farmer’s business was growing and selling grain (not storing it), holding his stock was just part of that. Consequently, the tribunal was happy that the storage was “temporary”.
Was the building “plant”?
Finally, the tribunal had to decide whether the silo qualified for capital allowances as “plant” under common law - the “in which” or “with which” test. Did the silo function as apparatus with which the farmer carried on his trade? Or was the silo non-qualifying business “premises” in which the trade operated?
The tribunal concluded that the facility dried and conditioned grain, and all its components, including the structure, were integral to this and constituted business apparatus. So, the cost was eligible for capital allowances in full even though it was a “building”.
Given that HMRC’s policy is to resist claims like this, but this decision went wholly the taxpayer’s way, it will be interesting to see whether HMRC appeals this case.