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Farms, buildings and capital allowances

With the withdrawal of tax relief on buildings, which was gradually withdrawn by 2011, it is important to maximise relief on anything that qualifies for capital allowances as plant, so as to reduce the tax liabilities arising on business profits.

We look at some of the allowances and practical points to maximising your capital allowance claim.

Writing Down Allowance (WDA)
Relief is available on the cost of plant and machinery at WDA of either 8% or 18%, on a reducing balance basis, depending on the nature of the expenditure.  Among the items qualifying for the 8% WDA are certain building expenses. These are commonly known as integral features, and will include electrical systems, cold water systems, external solar shading, ventilation costs, etc.

100% Relief under the Annual Investment Allowance
Relief is available on the cost of plant and machinery and integral features at a rate of 100% of the cost under the AIA. The limit has changed six times in the last 7 years and From 1 January 2016 the AIA reduced to £200,000 a year, from £500,000. Where expenditure is in excess of the AIA relief will be claimed at the WDA of 8% or 18%.
For a year-end ending on or after 31 December 2016 you will be entitled to a maximum claim of £200,000.

Enhanced Capital Allowances (ECA)
Where items qualify for the ECA, 100% relief is given on the expenditure over and above the Annual Investment Allowance (AIA). As such, if the full AIA has been utilised elsewhere, items qualifying for the ECA can obtain additional 100% relief over and above this figure. To qualify for the ECA, the items purchased must be specifically listed on an approved list produced by the UK Government.

Equipment within a Building
In addition to integral features it is also important to identify those parts of the building which qualify as plant for capital allowances. This is a complex area but among the items that will qualify are silage clamps, slurry/sewage systems, cleaning systems in dairy parlours, grain drying and handling equipment, feed handling systems, moveable barriers and pens, moveable building (with an intention to move them!).

Buildings under Construction or Refurbishment
In order to maximise the capital allowances claimed on a new building or the refurbishment of an existing building, it is essential that a full list of the work being undertaken is produced by either the builder when quoting for the work or the architect involved in the project when producing his schedule of works. This will provide the basis of maximising the tax relief obtained on such expenditure.

If you have a question in connection with capital allowances, please contact the office to discuss this further.

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