CheckLists.Tax (beta)
E4. Capital expenditure related to trade
PLANT + MACHINERY ALLOWANCES
Availability of allowance
General rule
- Allowances are available to a person (s.11):
(1) carrying on a qualifying activity (within the charge to UK tax)
(2) who incurs
(3) capital expenditure
(4) on the provision of plant or machinery
(5) wholly or partly for the purposes of that qualifying activity
(6) provided the plant or machinery is owned by that person as a result of incurring the expenditure.
- Allowances calculated separately for each qualifying activity (s.11(3)).
Legislation: CAA 2001, s.11;
Cases:
HMRC manuals:
Commentary:
See also:
- (1) Carrying on a qualifying activity (within the charge to tax)
Qualifying activities (s.15)
- Trade
- Property business
- Overseas property business
- Profession or vocation
- Certain other concerns related to mining, transport etc. (s.15(1)(f)).
Profits (if any) of activity must be chargeable to tax
- Activity of permanent establishment outside the UK which is elected to be separate entity is a separate activity and not chargeable to tax (s.15(2A)).
Pre-commencement expenditure
- If T is about to carry on the activity when they incur the expenditure, treated as incurred on the first day on which activity carried on (s.12).
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- (2) Incurs expenditure
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
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- (3) Capital expenditure
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
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- (4a) Identifying plant
Meaning of plant
- Plant is "whatever apparatus is used by a businessman in carrying on his business, not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business" (Yarmouth at 658 (Lord Lindley); Orsted §27).
Plant v. premises
- Plant excludes the premises or place in/upon which the business is conducted (Cheshire Cavity, §§82 - 83; Mersey Docks, §69).
- Fact that two things perform the same function does not mean that both are plant. One may function as part of the premises and the other as part of the plant (Cheshire Cavity, §60).
- It is possible for a large structural item to constitute plant, e.g. dry dock in Barclay Curle.
- "I do not say that every structure which fulfils the function of plant must be regarded as plant, but I think that one would have to find some good reason for excluding such a structure. And I do not think that mere size is sufficient." (Barclay Curle at 740, Lord Reid).
- Building or structure is not plant simply because it is purpose-built for a particular trading activity (Gray v. Seymour).
- Is it more appropriate to describe item as apparatus for carrying on the business or as the premises in or upon which the business is conducted? (Cheshire Cavity, §24; Mersey Dock, §69(5)).
- Not sufficient that the item performs any plant like function (Mersey Dock, §69(6)).
Hole in the ground as part of the plant
- In Barclay Curle, the excavated ground in which the dry-dock was construed was plant and the cost of excavation allowed.
- In Beach Station Caravans, the excavation of a hole into which a swimming pool was installed, gave rise to a single item of plant, cost of excavation allowed.
- In Cheshire Cavity, a cavity was created in which to store gas at high pressure. No equipment was installed into the cavity. Held that the cavity was not plant. Cost of creating the cavity not allowed.
- "the stumbling block for the taxpayer in Cheshire Cavity was ... that the cavity was not plant and did not become an integral part of an item of plant—it was simply a hole in the rock" (Orsted, §80).
Examples (plant)
- Dry dock which acted like a hydraulic chamber used to raise and lower ships. The valves and pumps could not be used to lower or raise ships without the remainder of the dock (Barclay Curle).
- "The whole dock is, I think, the means by which, or plant with which, the operation is performed." (Lord Reid at 679).
- Compare with Cheshire Cavity.
- Quay wall was a complex structure that function as plant in T's business in Mersey Dock. Difficult to say it is "merely the setting" and it plays "an essential part in getting large vessels into a position where loading and unloading can take place essential" (§81).
Examples (not plant)
- Planteria at garden centre, a structure which housed ornamental plants/protected them from the weather, was premises even though it had a functional aspect (Gray v. Seymour).
- Electricity substation, a specially designed underground box holding electrical equipment, was premises in Bradley.
- Tarmac and car wash hall, even though purpose-designed to perform a function, were premises (Attwood).
- All weather race track at a racecourse functioned as premises for horse racing. Not a tool by or with which business carried on (Shove).
- Cavity in the ground into which no equipment is installed (Cheshire Cavity; Orsted, §80).
Single or multiple items
- Matter of fact and degree (Mersey Docks, §61).
- Not a question of whether there is a single business purpose (Mersey Docks, §61).
- Relevant (but not determinative) to consider whether there is a distinct operational function/directed towards a single purpose.
- Quay wall held to constitute a distinct asset in Mersey Dock (§§63 - 66).
- In Orsted, the plant was the "generation assets of the windfarm treated as a single item, rather than each individual turbine" (§3).
Legislation:
Cases:
Yarmouth v France (1887) 19 QBD 647;
IRC v Barclay Curle [1969] 1 All ER 732;
Cooke v Beach Station Caravans Ltd [1974] 1 WLR 1398;
Cole Brothers Ltd v Phillips [1980] STC 518;
Gray v Seymour (1995) 67 TC 401 (CoA);
Bradley v London Electricity plc [1996] STC 1054;
Attwood v Anduff Car Wash Ltd (1997) 69 TC 575 (CoA);
Shove v Lingfield Park 1991 Ltd (2004) 76 TC 363;
Cheshire Cavity Storage 1 Ltd v HMRC [2022] EWCA Civ 305;
Urenco Chemplants Limited v HMRC [2022] EWCA Civ 1587;
Mersey Docks and Harbour Company Limited v. HMRC [2024] UKFTT 1163 (TC), Judge Sukul;
HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12;
HMRC manuals:
Commentary:
See also:
- Excluded items (and exceptions to exclusions)
Exclusions
- Dock, harbour, wharf, pier, marina or jetty.
Exceptions: machinery
- Expenditure on quay wall was expenditure on installing machinery (cranes) in Mersey Docks.
Exceptions: alteration of land
- Quay wall was not constructed for the purpose only of installing the cranes in Mersey Docks, it was also constructed for the purpose of providing a berth (§92).
Legislation: CAA, s.22, s.23;
Cases:
Mersey Docks and Harbour Company Limited v. HMRC [2024] UKFTT 1163 (TC), Judge Sukul;
HMRC manuals:
Commentary:
See also:
- (4b) Expenditure "on the provision of" plant
General
- Very fact sensitive and turns on the nature of what is bought by spending the sum and what is said to have been acquired (Orsted, §54).
- Requires a close connection (narrower than "in connection with" or "relating to") (Orsted, §§74, 85).
- Not limited to the purchase price, but expenditure must not be too remote in purpose from the actual plant and machinery itself (Orsted, §45).
Costs such as transport and installation are "inherent in the concept of the plant being "provided"" (Orsted, §85).
- Expenditure does not need to directly impact the value of the item of plant (Orsted, §89).
- Must not be expenditure on a distinct and separate operation, such as obtaining money to buy the plant/machinery (Ben-Odeco).
Timing of expenditure
- Different views set out without any conclusion in Orsted §§97 - 98.
Advisory, planning and design expenditure
- Not sufficient that the expenditure is necessary to design and install the plant.
- In Orsted, there was "no doubt" that T needed to obtain the information set out in various reports/studies to be able to design + build the windfarms (§4) but that was not sufficient for the expenditure to be "on" the provision of the windfarm.
- "The costs, commonly incurred, of carrying out studies and surveys which provide the business with advice about how to choose or design plant fall, in my view, well outside the limiting curve." (Orsted §85).
- Acquisition of designs to imprint on blocks to make patterned wallpaper was allowed in McVeigh (but see Orsted, §96).
- Advice on what to acquire is probably not expenditure on acquisition of whatever is acquired (Orsted §53 doubting Samarkand §396).
- Not all professional fees incurred during progress of the overall project qualify for relief (Orsted, §56).
- "Professional fees, such as survey fees, architects' fees, quantity surveyors' fees, structural engineers' fees, service engineers' fees or legal costs, only qualify for PMA as expenditure on the provision of plant or machinery if they relate directly to the acquisition, transport and installation of the plant or machinery and as such are part of the expenditure incurred on the provision of the plant or machinery." (CA20070)
-UKSC declined to give any real guidance on what design work would qualify as expenditure on provision of plant in Orsted (§94).
- HMRC's view seemed to depend on how close the design/survey/advisory work was to the final stages of fabrication of the plant (§95).
Finance costs
- Interest and commitment fees for a loan were expenditure on the provision of money to be used on the provision of plant, not expenditure on the provision of plant itself (Ben-Odeco).
Legal costs
- Expenditure on the cost of drafting and negotiating agreements for the acquisition of films was expenditure on the acquisition of the film in Samarkand (see also Orsted, §53).
Preparing a site of installation
- Excavation and concreting costs to construct dry dock was expenditure "on" the provision of plant in Barclay Curle.
- The dock as a whole was the plant and the excavation and concrete were necessary to construct the dock.
- The excavation was part of the creation of the dock itself, to be seen as an integral whole (Orsted, §79).
- "The only way the taxpayer in Barclay, Curle could provide itself with a large hole in the ground was by digging out 200,000 tonnes of earth." (Orsted, §78).
Preliminaries
- "installation and transport costs, or preliminaries such as site insurance and security, do not directly impact the value of the item of plant but everyone agrees that they can qualify" (Orsted, §89).
Cost of fabricating bespoke plant/machinery
- Cost of work involved in impressing a pattern onto blocks (which were plant) in order to make wallpaper qualified for allowances in McVeigh.
Transport
- Transport of plant to the place of use is expenditure on plant/machinery (Orsted, §§45, 48, 85).
Installation
- Expenditure on installing plant is expenditure on plant (Orsted, §§45, 85).
- Professional costs for expert on hand at building site to check machinery being installed is of the required specification + installed correctly is allowable (Orsted §56).
Legislation:
Cases:
McVeigh v Arthur Sanderson & Sons [1969] 1 WLR 1143 (Cross J);
IRC v Barclay Curle [1969] 1 All ER 732;
Ben-Odeco Ltd v Powlson [1978] 1 WLR 1093;
Samarkand Film Partnership No 3 v Revenue and Customs Comrs [2011] UKFTT 610 (TC);
HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12;
HMRC manuals:
CA20070 - Plant and Machinery Allowances (PMA): introduction: professional fees and preliminaries;
Commentary:
See also:
- (5) Wholly or partly for purposes of activity
Necessity for the purpose not required
- Expenditure need not be necessary to achieve the purpose of the activity - can be "nice to have" rather than "must have" (Orsted, §75).
Partly for another purpose
- HMRC accept that there can be a just and reasonable apportionment (Orsted, §26).
Legislation:
Cases:
HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12;
HMRC manuals:
Commentary:
See also:
- (6) Asset owned as a result of incurring expenditure
General
- Ordinary meaning of belongs to/owned requires that the person is "in law or in equity, the absolute owner" (Melluish, 476).
- Does not apply to hiring/right to use for a limited time (Stokes v. Costain Property).
- Does not apply to contingent equitable interests in fixtures that are "leased" to property owner but become part of the land (Melluish, 476 - 477).
- But now legislation provides exclusive code (Melluish at 481).
Legislation:
Cases:
Stokes v. Costain Property Investments Ltd. [1984] 1 WLR 763;
Melluish v. BMI [1996] AC 454 (HoL);
HMRC manuals:
Commentary:
See also:
Allowances and charges
- Annual allowances
- "The concept of the capital allowance therefore reflects the gradual deterioration of the asset through the wear and tear as it is used in the business and the ultimate need to replace it when it wears out" (Orsted §89).
Legislation:
Cases:
HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12;
HMRC manuals:
Commentary:
See also:
- Balancing allowances and charges
- Deal with the possibility that the asset has depreciated by more/less than the allowance regime assumed (Orsted §29).
Legislation:
Cases:
HMRC v. Orsted West of Duddon Sands (UK) Limited [2026] UKSC 12;
HMRC manuals:
Commentary:
See also:
BUSINESS PREMISES RENOVATION ALLOWANCE
- Business premises renovation allowance
General rule
- Purpose is to facilitate the return of existing business premises to business use (FRF, §48).
Conversion
- Conversion requires continuity of identity between the old building and the new building, even if the form of that building might change (FRF (South Wales), §24).
- Change of premises from warehouse to car show room had sufficient identity to be conversion (FRF, §32).
Legislation: CAA 2001, s.360B;
Cases:
FRF (South Wales) Limited v. HMRC [2024] UKFTT 1145 (TC);
HMRC manuals:
Commentary:
See also: