Is a grain silo plant?

Since capital allowances were invented accountants and businesses have struggled to determine whether certain items should be classified as “plant”, and hence qualify for higher capital allowances, or whether the expenditure was on a building or structure and thus little or no allowances are due.

This conundrum boils down to the “with which or in which” test.

If the item is apparatus with which the business carries on its trade, it is defined as “plant” and it should qualify for capital allowances as part of the normal or special rate pool. There are special rules that govern the capital allowances which can be claimed for cars, but a car can never be a structure.

If the expenditure was on a structure in which the trade operates, it is defined as a business premises that doesn’t qualify for capital allowances, where the cost was incurred or committed before 29 October 2018.

Where a non-residential building is constructed or improved on or after 29 October 2018 the cost may qualify for the new structures and buildings allowance (SBA). However, the SBA will only provide an annual allowance of 2% of the total costs. Where the expenditure qualifies as plant it will attract allowances at 18% or 8% (6% from April 2019), so a classification as plant is preferable.

Grain silos may look like structures, but they are actually huge fixed apparatus which dry and distribute grain. HMRC has long accepted that grain silos qualify as plant if the grain is held in the silo on a temporary basis, so the silo does not perform the function of a warehouse.

This is why farmer Stephen May claimed that full cost of his grain silo qualified for capital allowances. HMRC disagreed, although its own capital allowance specialist had said May’s claim had merit, he came under pressure to “hold the line” and resist the claim for the silo.

The first-tier tax tribunal agreed with HMRC that the grain silo was a “building”, but as the facility dried and conditioned grain, and all its components, including the structure, were integral to this, it constituted business apparatus. Using HMRC’s own internal guidance (Capital Allowance manual para CA22050) the silo could be treated as plant if it provided only temporary storage for the grain.

The grain in May’s silo was held there for up to 10 months, then the facility was emptied and cleaned ready to receive the next harvest. The tribunal found that this qualified as temporary storage.

Stephen May won his case, but beware that HMRC’s policy is now to resist all claims that grain silos are plant for capital allowances.

Stephen May v HMRC [2019] UKFTT 0032(TC), as reported