Business Clinic: Can we adjust capital allowances claim on new dairy?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Stuart Chipperfield, tax manager at MHA, advises on capital allowances for investment in plant and equipment.

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Q: We are a family partnership running a 300-cow dairy as our only enterprise, currently involving two generations. We completed a new dairy unit on a green field site two years ago and all is working well. I have since learned that we could have had more favourable capital allowances on some of this investment if we had obtained more detailed quotes. Please can you explain how this works and what is eligible for what rate of relief. Also, is it possible for us to make any adjustment or back claim for reliefs we were entitled to at the time but did not claim in the relevant year? If yes, how far back can we go?

A: You mention that the unit was completed two years ago. This may mean that action is needed urgently as the time limit for making a backdated capital allowances claim is quite short. 

The cut-off for making an amendment to the 2021/22 partnership tax return to include a capital allowance claim in respect of any qualifying expenditure is 31 January 2024. 

The accounting year end of the partnership will also have a bearing on the amended claim.

If this deadline is missed, then you will not be able to claim the more advantageous 100% annual investment allowances (AIA) as they can only be claimed for the tax year in which the expenditure was incurred.

Moving forward, any qualifying expenditure incurred after 5 April 2022 can still qualify for an AIA claim.  

For any qualifying assets that are still owned by the partnership and were purchased before 5 April 2022 but missed the AIA claim or didn’t qualify, a claim can be made for ongoing writing down capital allowances (WDAs) in the 2022-23 tax return and future years.  

However, with this allowance the rate at which tax relief will be received is spread over a much longer period.

Assuming there is still time to make an initial claim, the main allowance you will want to claim is the AIA, a 100% deduction against profits for the first £1m of qualifying expenditure in the tax year. 

Most dairy kit will qualify for 100% relief

Qualifying expenditure is plant and machinery and assets such as integral features that fall within what is termed the special rate tax pool.

It is likely that the vast majority of the equipment installed into the dairy unit will qualify as plant and machinery, that is parlour equipment including bulk tank, internal barriers and cattle handling facilities, pre-cast (moveable) concrete panels, slurry storage and handling equipment. 

Any plant and machinery expenditure not covered by an AIA claim is eligible for an 18% annual WDA.

Cold/hot water, heating and electrical systems including lighting systems typically fall under the integral features category and qualify for a less favourable 6% tax relief a year, if they are not already part of the claim for the AIA. 

The basic building structure will qualify for a 3% annual structure and buildings allowance (SBA).

It’s worth noting that eligible costs for the SBA include professional fees relating to design and construction of the site.

In addition to the allowances mentioned, first year allowances and small pools allowances are available, but are unlikely to be of relevance here.

Identify different elements of investment 

To make the capital allowance claims, all the separate costs involved in the design, construction and fit-out of the unit must be identified so a decision can be made as to what category of allowances each cost fits into.  

This is where a detailed list of works from the contractors who constructed and/or fitted out the unit is essential, to help your tax advisor identify all the qualifying parts.

If this is not available, you may wish to contact a capital allowances specialist, usually a dual-qualified surveyor and tax advisor and so able to survey the facility to produce a list of the assets that qualify for allowances and at what rate. 

With this information the partnership and partners’ personal tax returns can be amended or/filed accordingly.

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