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Fixtures Consultation - Our View

Initial Comment on HMRC Proposals to Change to Rules for Claiming Capital Allowances for Plant and Machinery Fixtures

On 31 May 2011 HM Revenue & Customs (‘HMRC’) issued a consultation paper proposing major changes to the rules that permit capital allowances claims for plant and machinery fixtures.  Further details are available in our previous article.

The Capital Allowances Partnership Limited represents the Tax Faculty of the Institute of Chartered Accountants in England and Wales on HMRC's working group to consider the proposed changes.


We will be taking a leading role in lobbying during the consultation process, which ends on 31 August 2011.  If you would like us to incorporate any of your comments, please let Martin Wilson know by e-mail to or telephone to 0116 241 4148.



The Capital Allowances Partnership Limited’s view is that HMRC has not fully considered the practical implications of the proposed changes.  The Exchequer will raise considerable additional tax because the likelihood is that property owner-occupiers and investors will lose capital allowances to which they should otherwise be entitled.


From experience, contrary to HMRC’s view, the majority of taxpayers (particularly, SME entrepreneurial and family-run businesses) are poor at claiming capital allowances.  The impact upon such businesses will be particularly severe as there is a low likelihood that they will receive specialist capital allowances advice.

HMRC’s Perceived Problem

HMRC’s perceived problem is that expenditure on qualifying plant fixtures is sometimes being written-off against taxable profits more than once over its economic life.


Fundamentally, this is happening because property sellers are continuing to claim capital allowances when they should not be doing so (by failing to deduct an appropriate disposal value from their capital allowances pool after selling the plant, as required by statute).  HMRC already has discovery and penalty powers to deal with this.

Proposed Mandatory Pooling

Broadly, HMRC has proposed that any expenditure on plant fixtures must be ‘pooled’ (that is, notified to HMRC by addition into a tax computation) within a new time limit, which may be one year or possibly two years from the date a fixture is acquired (whether as part of a property acquisition or otherwise).

Buyers Will Lose Allowances

The proposed changes impose an extra burden on buyers.  In many cases the proposals will result in the grossly unfair result of buyers, for reasons entirely beyond their control, losing all of the capital allowances to which they would otherwise be entitled (caused by the failure of a prior owner to comply with the proposed rules).

New Rules Should Not Apply to Construction Expenditure

There is no reason that the proposals should apply to construction expenditure (that is, “new expenditure” such as new-builds, extensions and refurbishments etc.).  This is wholly unjustified, even by HMRC’s own rationale.  There is simply no need to consider the plant’s ownership history because there have been no prior owners, so it is impossible for HMRC’s perceived problem to exist.  Therefore, mandatory pooling should only apply to the sale and purchase of second-hand fixtures.

One-Year Time Limit Unworkable

A one-year time limit to pool expenditure on fixtures would be unworkable and impractical.  For example, for construction projects it can routinely take considerably longer than a year to agree outturn costs with contractors and suppliers and prepare a thorough capital allowances claim.  Indeed, one year could be almost a year in advance of the existing claim and tax return filing deadline, which will still run in tandem. 


For fixtures acquired early in an accounting period, the deadline might have passed by the time the audit commences!  Two years is the minimum which should be required.

Time-limit Should Be Based on Year-end Not Transaction Date

Also, any such deadline should ideally be based on the business’s accounting year-end or tax year-end, rather than the transaction/ expenditure date.  Most modern computer-based tax administration tools generate deadlines and reminders based on year-ends and tax filing deadlines.  It is difficult to see how tax advisers and such systems could readily deal with deadlines based on potentially multiple transaction dates, without becoming so unwieldy to become impractical.  There could be up to 365 transaction-related deadlines in any particular year.

Unfair on Loss-making Businesses and Start-ups

A mandatory time limit would be unfair to loss-making businesses and new start-ups, who would be forced to incur the time and cost of establishing their capital allowances position at a time when they could not make use of the potential tax relief and could probably ill afford the professional costs involved.

Record of Agreement

A second HMRC proposal is that on a property acquisition, the seller and buyer should sign a joint Record of Agreement (‘ROA’) setting out the amount allocated to  plant fixtures.  Whilst, in principle, a ROA ought to improve clarity and symmetry between the parties there are a number of matters of concern in HMRC’s proposals.

Buyers will lose allowances

It is fundamentally unfair that a taxpayer who has met all the long-standing statutory criteria for claiming allowances (that is, broadly, having purchased apparatus for business purposes) should be prevented from benefitting from the intended tax relief simply because a vendor has refused or neglected to sign a joint agreement.

Unfair on small businesses

We have seen with Capital Allowances Act 2001 Section 198 elections that they have become a tool with which large and well-advised businesses can pressurise or even ‘trick’ small businesses into giving up allowances.  The ROA is certain to be used in the same way, but more frequently.

Not an Administrative Matter, But a Fundamental Change in the Law

In our view, a ROA should not be required from a non-taxpayer and if a seller has made no capital allowances claim on particular fixtures then this should also remove the need for one.  It would be unworkable to require a taxpayer to list assets upon which he had not claimed and, therefore, would be highly unlikely to have relevant records for.


Also, it is worrying that while HMRC proposes requiring the parties to a transaction to agree and submit a formal ROA (without which no subsequent owner of the plant may claim any capital allowances for those same plant fixtures), we understand that HMRC has no intention to catalogue and make available such ROAs in future.


View and save The Capital Allowances Partnership Limited's Comments as a PDF file.


Tags for this article: capital allowances, plant and machinery, fixtures, HMRC consultation, mandatory pooling, record of agreement

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