This article was written by John Ward and published in the National Taxation Magazine and on their website.
Can additional tax relief be claimed on slurry systems?
John Ward of Davisons Chartered Accountants based in North Devon has been reviewing the latest legislation with a view to maximising tax relief on expenditure.
THE REVENUE VIEW—RELIEF ON SYSTEMS BUT NOT STRUCTURES
Under Revenue and Customs Brief 66/08, slurry storage systems located anywhere in the UK which are used for the temporary storage of slurry qualify as plant or machinery for the purposes of capital allowances. This was introduced following the 1991 EU Nitrates Directive that guides the use of fertilizers and necessitates the storing of slurry prior to its application. Under the terms of the brief, a slurry storage system includes the following:
- a slurry storage tank, whether above or below ground
- any reception pit and any effluent tank used in connection with the slurry storage tank
- any channels and pipes used in connection with the slurry storage tank, and reception pit or effluent tank
These items automatically qualify as plant.
However, the brief also specifically states that, using the facts in the case of Attwood v Anduff Car Wash Ltd where the structure housing a car wash did not qualify for allowances, the structure or building surrounding a slurry system does not qualify for allowances.
HOW TO MAXIMISE RELIEF FOR SLURRY SYSTEMS
We have looked into four different types of slurry stores and buildings – shown in diagrams 1 to 4.
- Diagram 1 is an under floor slurry storage tank with drainage channels to allow the slurry to drain into the tank. The tank may or may not have a shed over it (which in itself would not normally qualify as plant). We believe that in this case, the whole system including the sealed concrete floor, tank and drainage channels will qualify as plant. This can often amount to a significant cost.
- Diagram 2, the shed covers the storage tank. There is then a system taking the effluent away into a separate, sealed tank outside of the shed. In this case, again we believe that the slurry storage tank, together with the remainder of the slurry system would qualify as plant. The shed housing the tank, is capable of a separate existence as a building on its own and would not qualify.
- Diagram 3 shows a slurry storage tank, where the roof covering it is attached to the sides of the tank, effectively forming a sealed unit. Again there are additional parts of the system to the tank itself. In this case, we believe the roof is part of the slurry tank, as it is attached to the sides of the slurry tank, and therefore an integral part of the system.
Revenue Brief 66/08 states that
‘slurry storage systems, including a tank, whether above or below ground, qualify as plant but a building or structure which is part of a slurry storage facility does not qualify.'
However it does not address the case such as here where the structure is an integral part of the slurry storage tank and cannot be used for dual purpose.
In the case of Schofield v R & H Hall Ltd, grain silos were held to be plant with the silos and external walls regarded as a single unit. In this case it was said that
‘the silos are really collections of built in bins rather than buildings capable of housing bins which could be put to any other use as buildings’.
In addition, in CA22120 – PMA: Buildings & Structures: Cold Stores could also be referred to, where :
‘a refrigerated building which is used as a cold store may be incapable of independent existence. Where the cold store is an insulated box housed inside a building, the building is deemed capable of independent existence and allowances do not apply. However, if the cold store consists of a refrigeration unit plus framework, and the framework is incapable of existence as a separate building, the whole is deemed to effectively be a large fridge and qualify’.
Using these examples, provided the slurry tank has a roof and sides supports attached to the sides of the tank and cannot be used for any other purpose, we believe there is an argument that it is eligible to be treated as plant, and allowances apply.
The Revenue may try to argue that the roof is just providing shelter to the slurry, and disallow relief. However, we believe that if it is integrated into the system and can’t be used for anything else, there is a good argument for claiming relief.
- Diagram 4 shows a slurry store that also has a roof attached to it, but the roof is higher with cattle slats and a suspended slatted floor above the slurry allows the shed to be used for animals, with slats to allow the slurry to drain through to the floor below. However, in this case, as the shed also houses the cattle, we believe the shed itself would not qualify as plant due to its dual purpose, although the slurry storage which will form a large part of the cost will qualify.
Clients should again work closely with contractors to ensure they structure these systems in the most tax efficient manner. Where the intention is to put a roof over the slurry storage tank, by attaching it to the sides of the slurry tank, they could benefit from a significant level of additional tax relief. Where the shed and roof is clearly dis-allowable obtain a separate invoice for the floor system and qualifying plant.
SLURRY PITS - DO THEY QUALIFY?
Following on from the guidance that allows a slurry storage system to be treated as plant, one might also ask the question ‘what is a slurry pit and slurry storage tank when they are not located above ground?’
As detailed above, Revenue & Customs Brief 66/08 states that
'the reception pit, and a slurry storage tank, whether above or below ground will qualify as plant & machinery’.
However it does not go on to give specific guidance.
If a pit is simply dug into the ground, and used to store slurry, the Revenue could argue that the cost of digging the pit will not qualify as plant, as it is not specific to the purpose, or functional i.e. the pit could be used for any purpose as no action has been taken to prevent the slurry from leaving the pit.
However, if a sealed plastic lining is used, specific action has been taken to contain the slurry within the pit, and as a result should fulfil the function of apparatus—CA22060—PMA: Buildings and Structures: swimming pools refers to the case of Cooke v Beach Station Caravans Ltd in which a swimming pool was held to be plant. The pool was part of the apparatus used for carrying on the trade of operating a caravan park, and with its attendant apparatus formed an entity, which performed a function. Therefore the cost of both digging the pit, and the cost of the lining should qualify. This would also be the case with a sealed concrete lagoon.
SUMMARY— PLAN CAREFULLY !
Careful planning is required to ensure farming clients obtain maximum tax relief on expenditure that on the face of it, may not appear to qualify for any allowances.
Providing structures are planned carefully at the design stage, or are built so that they form an integral part of a system that is treated as plant, valuable tax relief can be obtained. In order to maximise the chances of obtaining this relief, clients should do the following:
- ensure invoices are split between the building and the slurry plant parts – this ensures that if relief is denied on the main structure, it is maximised on the integral fittings
- ensure they work closely with the contractors at the design stage
- If you wish to get tax relief on the roof, farmers should ensure the structure is fixed to the sides of the storage tank to form one unit. This however may not have the same long term value as a free standing building which could be used for other purposes – be careful not to plan just for tax at the expense of the long term benefit to the client !
- If you are unable to build the system with the roof as an integrated part, where possible design sheds where the floor system forms part of an integrated slurry system to maximise the chances of obtaining relief on the cost of the floor of the shed—this in itself could be substantial.