TAX LECTURE 8
UNIT 08 – CAPITAL ALLOWANCES
OUTCOMES:
Explain how capital allowances replace depreciation for expenditure on certain non-current
assets
Compute capital allowances on expenditure on plant and machinery
Compute capital allowances on expenditure on buildings and structures
CAPITAL EXPENDITURE:
Plant and machinery
Structures and buildings
Patent rights
Know-how
Research and development
Renovation of business premises
INTRODUCTION:
Depreciation and losses on disposal not allowable
- Add back
Instead, Capital Allowances given according to strict rules
Think of capital allowances as depreciation computed under tax rules, not accounting rules
Main category is ‘plant and machinery’
At one time there was no definition of plant in statute, hence….
CASE LAW:
Yarmouth v France
“Whatever apparatus is used by a businessman for carrying on his business, not his stock in
trade which he buys or makes for sale, but all goods and chattels, fixed or movable, live or dead,
which he keeps for permanent employment in his business.”
HELD TO BE PLANT:
• Jarrold v John Good & Sons (1962)
• Moveable partitions
• Barclay, Curle & Co v IRC (1969)
• Dry dock
• Cooke v Beach Station Caravans Limited (1974)
• Swimming pool
• IRC v Scottish and Newcastle Breweries Limited (1982)
• Hotel decorations
• Cole Brothers v Phillips (1982)
• Display lighting in store window
• Hunt v Henry Quick Limited (1992)
• Storage platforms
• Munby v Furlong (1977)
, • Barrister’s law books
HELD NOT TO BE PLANT:
Wimpy International v Warland (1989): False ceiling
Gray v Seymours Garden Centre (1993): Greenhouse
Attwood v Anduff Car Wash Limited (1997): Car wash
St John School v Ward (1974): Laboratory
Benson v Yard Arm Club Limited (1979): Moored restaurant
Cole Brothers v Phillips (1982): Strip lighting in main retail area
Dixon v Fitch’s Garage Limited (1975): Petrol station canopy
Brown v Burnley Football & Athlectic Co Limited (1980): Football stand
Hampton v Fortes Autogrill Limited (1979): False ceiling
PLANT:
Assets which perform an active function in the carrying on of the business (the apparatus with
which the business is carried on) are plant
Assets which perform a passive function (the setting in which the business is carried on) are not
plant
Capital Allowances Act 2001 provides a list of assets that cannot qualify as plant and another list
of assets that can qualify provided they do perform an active function
SECTION 21 CAA 2001 BUILDINGS:
Expenditure on the provision of plant or machinery does not include expenditure on the
provision of a building or a structure.
The provision of a building includes its construction or acquisition.
Buildings include walls, ceilings, doors, gates, windows and stairs
Also lift shafts, mains services for utilities and fire safety systems
Structures include a bridge and a dock
See later for capital allowances on buildings and structures
ASSETS NOT AFFECTED, SO CAN BE PLANT IF CASE LAW TESTS SATISFIED:
Computer, telecommunication and surveillance systems (including their wiring or other links).
Refrigeration or cooling equipment.
Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
Burglar alarm systems.
Strong rooms in bank or building society premises; safes.
Partition walls, where moveable and intended to be moved in the course of the qualifying
activity.
Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades.
Advertising hoardings; signs, displays and similar assets.
Swimming pools (including diving boards, slides and structures on which such boards or slides
are mounted).
MORE EXAMPLES OF PLANT:
UNIT 08 – CAPITAL ALLOWANCES
OUTCOMES:
Explain how capital allowances replace depreciation for expenditure on certain non-current
assets
Compute capital allowances on expenditure on plant and machinery
Compute capital allowances on expenditure on buildings and structures
CAPITAL EXPENDITURE:
Plant and machinery
Structures and buildings
Patent rights
Know-how
Research and development
Renovation of business premises
INTRODUCTION:
Depreciation and losses on disposal not allowable
- Add back
Instead, Capital Allowances given according to strict rules
Think of capital allowances as depreciation computed under tax rules, not accounting rules
Main category is ‘plant and machinery’
At one time there was no definition of plant in statute, hence….
CASE LAW:
Yarmouth v France
“Whatever apparatus is used by a businessman for carrying on his business, not his stock in
trade which he buys or makes for sale, but all goods and chattels, fixed or movable, live or dead,
which he keeps for permanent employment in his business.”
HELD TO BE PLANT:
• Jarrold v John Good & Sons (1962)
• Moveable partitions
• Barclay, Curle & Co v IRC (1969)
• Dry dock
• Cooke v Beach Station Caravans Limited (1974)
• Swimming pool
• IRC v Scottish and Newcastle Breweries Limited (1982)
• Hotel decorations
• Cole Brothers v Phillips (1982)
• Display lighting in store window
• Hunt v Henry Quick Limited (1992)
• Storage platforms
• Munby v Furlong (1977)
, • Barrister’s law books
HELD NOT TO BE PLANT:
Wimpy International v Warland (1989): False ceiling
Gray v Seymours Garden Centre (1993): Greenhouse
Attwood v Anduff Car Wash Limited (1997): Car wash
St John School v Ward (1974): Laboratory
Benson v Yard Arm Club Limited (1979): Moored restaurant
Cole Brothers v Phillips (1982): Strip lighting in main retail area
Dixon v Fitch’s Garage Limited (1975): Petrol station canopy
Brown v Burnley Football & Athlectic Co Limited (1980): Football stand
Hampton v Fortes Autogrill Limited (1979): False ceiling
PLANT:
Assets which perform an active function in the carrying on of the business (the apparatus with
which the business is carried on) are plant
Assets which perform a passive function (the setting in which the business is carried on) are not
plant
Capital Allowances Act 2001 provides a list of assets that cannot qualify as plant and another list
of assets that can qualify provided they do perform an active function
SECTION 21 CAA 2001 BUILDINGS:
Expenditure on the provision of plant or machinery does not include expenditure on the
provision of a building or a structure.
The provision of a building includes its construction or acquisition.
Buildings include walls, ceilings, doors, gates, windows and stairs
Also lift shafts, mains services for utilities and fire safety systems
Structures include a bridge and a dock
See later for capital allowances on buildings and structures
ASSETS NOT AFFECTED, SO CAN BE PLANT IF CASE LAW TESTS SATISFIED:
Computer, telecommunication and surveillance systems (including their wiring or other links).
Refrigeration or cooling equipment.
Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
Burglar alarm systems.
Strong rooms in bank or building society premises; safes.
Partition walls, where moveable and intended to be moved in the course of the qualifying
activity.
Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades.
Advertising hoardings; signs, displays and similar assets.
Swimming pools (including diving boards, slides and structures on which such boards or slides
are mounted).
MORE EXAMPLES OF PLANT:
