CA20070 - Plant and Machinery Allowances (PMA): introduction: professional fees and preliminaries
Professional fees
Professional fees, such as survey fees, architects' fees, quantity surveyors' fees, structural engineers' fees, service engineers' fees or legal costs, only qualify for plant and machinery allowances (PMA) as expenditure on the provision of plant or machinery if they relate directly to the acquisition, transport and installation of the plant or machinery and as such are part of the expenditure incurred on the provision of the plant or machinery.
The Supreme Court judgment in Orsted West of Duddon Sands Ltd and others v Commissioners for HMRC, [2026] UKSC 12, provided clarification at paragraph 56 (see CA95010):
HMRC accept that some professional fees may be incurred on the actual provision of the plant. An example given at the hearing was if there is an expert on hand at the building site to check that the machinery which has been delivered and is being installed is of the required specification and is being installed correctly. There is nothing in the manual that suggests that all professional fees incurred during the progress of the overall project qualify for relief as being on the provision of plant.
Preliminaries
The same rule of law applies to preliminaries. Preliminaries are indirect costs incurred over the duration of a project on items such as site management, insurance, general purpose labour, temporary accommodation and security.
Where preliminaries and professional fees are paid in connection with a building project that includes the provision of plant or machinery, only the part, if any, which relates to services that can properly be regarded as on the provision of plant or machinery can be qualifying expenditure for PMA.
Establishing the part which relates to such services needs to be determined on a case by case basis. There is no one correct answer for all cases. For some cases it may be necessary to carry out a detailed analysis of the individual costs to determine whether, or the extent to which each should properly be apportioned to particular plant or machinery expenditure. In other cases, it may only be possible to apportion the costs between items which do, or do not, qualify for PMA. (This is sometimes called “the pro rata approach”).
This was said at paragraph 92 of the Upper Tribunal decision in JD Wetherspoon v HMRC Commissioners, [2012] UKUT 42 (TCC):
Preliminaries are, by their nature, items of overhead expenditure which cannot be, or which have not been, attributed to any single item in the building project. Some, like insurance, are inherently incapable of being so attributed. Others, like scaffolding, may be capable of specific attribution, but the time and cost involved in the process of specific attribution is often disproportionate to the amount at stake. Thus, apportionment of preliminaries between items which do, or do not, qualify for capital allowances is the only solution in relation to un-attributable preliminaries, and may be the sensible solution where attribution is uneconomic.
Preliminaries in small construction projects
For most small construction projects (say where the total construction costs are less than £5m) the use of the pro rata approach will generally be acceptable (unless it is clear that an apportionment approach would be demonstrably inappropriate without opening any enquiry). So, for such smaller claims, enquiries should not be opened simply because a business has made a pro rate apportionment of professional fees and preliminaries. Indeed, even if other aspects of any wider capital allowance claim are subject to an enquiry, a challenge to a pro rata approach to professional fees and preliminaries should not be made solely because the business has used a pro rata methodology.
It may be that the amount of the professional fees or, perhaps more particularly, preliminaries, looks unusually high (more than 25% of the total construction costs excluding the preliminaries and professional fees). However, the advice of the Valuation Office (see CA12300) must be sought in any such case where the initial fact finding seems to suggest that particular costs are unusually high because the costs may have been incorrectly classified as either relevant professional fees or preliminaries.
Preliminaries in larger construction projects
In larger construction projects (say, where the total construction costs exceed £5m) there will often be other capital allowances aspects that need to be enquired into and it may be that one aspect of a wider review of the capital allowance claim will be the treatment of professional fees and preliminaries. If a business has decided to pro rata such costs then the advice of the Valuation Office must be sought before challenging the treatment adopted by the business.
If, unusually, in relation to any larger construction project, it is considered that the only cause of concern is that the costs have been apportioned on a pro rata basis, the advice of the Valuation Office must be sought before opening any enquiry.
Requests to agree a pro rate approach in all projects
Some businesses may approach HMRC seeking an agreement that they will use a pro rata approach in all their projects. In order to be considered, all such proposals must, of course, be fully supported with a detailed explanation of the underlying facts and circumstances. If a reasoned case has been made for the use of a pro rata methodology, then the advice of the Valuation Office must be sought, in the first instance. If the Valuation Office accepts the pro rata basis for all of a business’s projects for a particular year, no agreement should, however, be given that binds HMRC to the same approach for future years. For the future it must be made clear that HMRC will take a risk based approach to deciding whether the apportionment methodology remains appropriate.
Design costs
In Orsted, the Supreme Court decided that the cost of studies and surveys which provided the business with advice about how to choose or design plant did not qualify for capital allowances (see CA95010).
Design costs qualify for PMAs only where they are incurred on the provision of plant or machinery per the statutory test in section 11(4) Capital Allowance Act 2001. This requires a direct and close connection between the design work and the item of plant that is ultimately provided. Following the Supreme Court in Orsted, expenditure on studies or surveys carried out at a preparatory or early stage of a prospective investment – such as work undertaken to assess feasibility, select a site, gather data to inform the development, or inform whether and how a project will proceed – will not normally be expenditure “on” the provision of plant or machinery and does not qualify for PMAs. Neither will costs incurred for securing planning consent or similar regulatory approvals.
By contrast, design costs that form an integral part of constructing or installing a specific item of plant, for example the cost of producing the final detailed engineering designs without which the plant could not be manufactured or installed, and which are incurred as part of the process of providing the plant, may qualify on the same basis as transport and installation costs. That is, where the design costs are inherent in the concept of the plant being “provided” (see CA20060). Each case must be considered on its own facts, but costs that merely provide inputs to design or explore the feasibility of the project or which relate to the wider project or setting, rather than the plant itself, will fall outside section 11(4) CAA01 and therefore not qualify for PMAs.