Slurry storage costs - what qualifies for capital allowances?

Almost certainly one of the biggest challenges facing livestock farmers in the next few years will be increased regulations surrounding slurry storage and in particular the reduction of ammonia emissions. 

The government has promised financial assistance for farming businesses needing to invest in new or upgraded facilities. A “slurry investment scheme” is due to be introduced in 2022, but at present, there is a frustrating lack of detail. The government document Farming is Changing, published in October 2020, did not give details of the level of support payable, and suggested, at least initially, assistance would not be available in all parts of the country. 

When it comes to the tax relief due on slurry storage facilities, again, there is a lack of clarity and certainty on the rate. 

• If the expenditure is deemed to be on plant and equipment, it qualifies for capital allowances at 100% if it is within the Annual Investment Allowance (AIA) limit or 18% Writing down Allowance (WDA) per year. The AIA limit is currently £1m per year but is due to reduce to £200,000 from 1 January 2022. 

• If the expenditure is deemed to be on a building, relief is restricted to 3% Structures and Buildings Allowance (SBA) each year. 

Fortunately, HMRC has stated that storage tanks, both above and below ground, and any reception pit, channels, pipes, etc, qualify as plant and equipment. However, the position regarding a roof or cover over a slurry store is less clear. If HMRC considers that the roof is not integral to the operation of equipment, then they will restrict this part of the expenditure to 3% SBA.

An example of how HMRC interprets the position can be seen from a case involving a carwash business a few years ago. The company operated an automated carwash and claimed capital allowances on the full cost of a new site including the walls and roof surrounding the machinery. This seemed reasonable on the basis that it was a single item of plant that would not work effectively if it was open to the elements. Unfortunately, both HMRC and the High Court disagreed, and disallowed relief of the walls and roof. It is easy to see HMRC running the same argument if a roof is put over an existing slurry store. 

This is an example of a lack of joined-up thinking between government departments. It is to be hoped that HMRC accepts that expenditure to reduce ammonia and other greenhouse gas emissions is eligible for capital allowances.