HMRC’s restrictive definition of “storage silo” has been successfully challenged. It may result in significant tax reliefs being widely available to arable farmers.
What’s a silo?
For many years, tax relief has been available for “silos provided for temporary storage”. Historically, HMRC have regarded the relief as restricted to transit silos – that is, silos for short-term storage. Typically, these facilities take the form of vertical silos with systems of augers and conveyors to carry grain to and from the loading area. Grain trading companies have built large complexes of these structures which gather grain from multiple farms and store it centrally prior to onward distribution.
Under the Capital Allowances Act 2001, such silos qualify as plant and machinery for capital allowance purposes. As a result, the cost of constructing them can qualify for the annual investment allowance (AIA) which allows expenditure to be offset against profits immediately and is currently available for expenditure of up to £1m per annum.
By contrast, a facility that does not qualify as a “silo provided for temporary storage” is likely to attract only the recently introduced “structures and buildings allowance” at only 2% writing down allowances per annum, although separately identifiable items of machinery within the building might be covered by AIA. (Historically, special allowances were available for agricultural buildings latterly at a rate of 4%, and previously at a rate of 10% but these were phased out between 2008 and 2011).
Going against the grain?
So where does that leave buildings constructed by individual farmers, which from the outside may look like any other secure agricultural building but which incorporate equipment to dry and ventilate the grain and are designed to keep grain on-site in optimum condition between harvest and sale, perhaps six months later. Are they “silos”? And is the storage “temporary”?
In the past, it’s been HMRC’s view that the answer to both questions is no. They have been considered to be buildings, not silos, although the drying machinery and other parts of the fit-out inside has qualified as plant and machinery.
However, Stephen May, a farmer from North Devon, claimed plant and machinery allowances on the full cost of a new grain store consisting of a steel framed building with specially strengthened concrete walls to hold piles of grain and drying and aeration equipment. HMRC opened an enquiry into his tax returns and rejected the claim. The First-tier Tribunal, in a decision published in January 2019, agreed with Mr May.
At the tribunal, it was argued by HMRC that the grain store was not a “silo” as that word is generally understood. HMRC also argued that without the machinery, the building was simply a building capable of being put to some other use.
The tribunal rejected this argument. They considered that whilst to a layman the building did look just like any other agricultural building, it was specifically designed for the storage of grain:
- The pitch and height of the roof were chosen to optimise the functioning of the machinery;
- The floor was specially chosen;
- There was an exhaust fan fitted in the wall;
- The walls of the building were built to a strength necessary to support the weight of the grain.
Consequences for comp-arable situations
Does this decision now mean that anyone building similar structures should claim full capital allowances on the costs? More than that, can farmers who built similar structures in recent years now reopen past tax returns if they have not previously claimed capital allowances on the full cost?
Decisions of the First-tier Tribunal do not create binding precedents. Although HMRC is not appealing the decision, it has not apparently changed its policy.
It is worth pointing out that this decision was reached on a very specific set of facts: a different tribunal might come to a different decision if faced with a slightly different scenario. Furthermore, another case could lead to an appeal to a higher court which would create a binding precedent.
If you are building a grain store and would like to explore your options, our farming and tax specialists would be pleased to advise you. For more information, please get in touch with your usual BKL contact or use our enquiry form.
Our farms and estates specialists will be at Cereals 2019 on 12-13 June, including a drop-in tax surgery with the CLA. Find out more here.