What is Plant & Machinery?
- Published: 27th March 2017
Capital allowances are given for various types of capital expenditure, but the most commonly available allowances are for “plant and machinery”. It is therefore important to understand the meaning of this term. Capital allowances are, of course, a legitimate form of tax relief relevant to most businesses and commercial property investors.
This article will consider what the term plant and machinery means in the context of capital allowances. It is often far from clear to accountants and tax advisers, let alone to owners and occupiers of commercial properties.
The tax rules do not include a definition of plant or machinery but, in very simple terms, it includes “apparatus” used by a business (which must be engaged in a qualifying activity). The apparatus may form part of a building or structure but buildings and structures do not themselves constitute plant or machinery (though subject to rare exceptions).
The term plant and machinery includes fixtures and also, since the concept was introduced in 2008, integral features. Integral features do have a legal definition, and include some items that did not normally qualify before 2008 (e.g. cold water systems, lighting and general electrical work) as well as others that did already qualify (e.g lifts and air conditioning systems). In some circumstances, tax relief is given more slowly for integral features than for other plant and machinery.
Owners and occupiers are often surprised at the wide range of assets and expenditure which qualify for plant and machinery allowances. By way of example in the hotel sector Stuart Rivers Associates have prepared a claim for allowances where plant and machinery included the following integral features: cold water systems; water heating systems; space heating systems; ventilating systems; air cooling systems; electrical systems and lifts. Plant and machinery also included: parts of bathrooms; kitchen equipment; sanitary accessories and fittings; fire alarm and smoke protection; sprinkler system; filtered water system; kitchen, restaurant and bar services; relays for room booking system; telecom installation; kitchen, restaurant and bar drainage; banners and flags; décor; furniture and furnishings; swimming pool and last but by no means least a Jacuzzi. Please note that for brevity this is not a complete list and that some of these items would not qualify for plant and machinery allowances in a different context or commercial property sector. It hopefully illustrates, however, the wide range of assets and expenditure which may qualify for allowances.
The percentage of capital expenditure qualifying for plant and machinery allowances can range from as little as five percent in a simple retail property to as much as forty percent in a complex healthcare property. You might be reading this article at your desk in a modern office where plant and machinery represents as much as twenty five percent of the capital expenditure on the property.
At Stuart Rivers Associates we work closely with solicitors and their clients buying or selling commercial properties. We often see replies to enquiries before contract from sellers stating categorically that there is no plant and machinery in the subject property. It is difficult to imagine a property where this could be right. Plant and machinery allowances apply to all sectors and grades of commercial property.
According to a leading commentator considering the meaning of plant and machinery: “a simple list of assets will rarely provide a satisfactory statement of the correct tax treatment. What is required is a more nuanced and sophisticated analysis, where the likely outcome is explored in the context of the statutory rules and of case law precedents......it is also helpful to understand the HMRC perspective."
If you are buying an old or a new property, altering, extending or refurbishing a new property, or fitting out let property you may well be entitled to claim capital allowances, also known as plant and machinery allowances.
We hope that this short article introducing the meaning of plant and machinery in the context of capital allowances has been of interest and we will be happy to discuss any point with you in more detail.