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HMRC internal manual

Capital Allowances Manual

Plant and Machinery Allowances (PMA): buildings and structures: expenditure on integral features: the assets - more detail

CAA01/S33A, S33B

An electrical system (including a lighting system) is not defined for the purposes of the legislation, so the term takes its ordinary meaning: a system for taking electrical power (including lighting) from the point of entry to the building or structure, or generation within the building or structure, and distributing it through the building or structure, as required. The system may range from the very simplest to the most complex.

The term does not include other building systems intended for other purposes, which may include wiring and other electrical components. For example, communication, telecommunication and surveillance systems, fire alarm systems or burglar alarm systems. These other systems are all separately identified in S23 (3) List C of CAA01.

The cost of a ducting system within the building or structure follows the tax treatment of the system or systems that the ducting supports. So ducting which relates solely to the building’s electrical system would be part of that system and would qualify for WDAs at the rate for the special rate pool, whereas ducting relating solely to a computer system could qualify for WDAs at the rate for the main pool. Where ducting supports two or more systems simultaneously, the relevant expenditure should be apportioned on a fair and reasonable basis, and capital allowances may be claimed on each portion of the total expenditure at the rate appropriate to that portion. (The rate of WDA for the main and special rate pools are reduced from 20% to 18% and from 10% to 8% respectively from 1 April 2012 (CT) and 6 April 2012 (IT).)

A cold water system is, similarly, not specifically defined, so the term takes its ordinary meaning: a system for taking water from the point of entry to the building or structure and distributing it through the building or structure, as required. Again the systems may range from the very simplest to the most complex.

The benefits of including electrical and cold water systems in the new classification

The inclusion of both systems in the list of integral features:

  • carries the simplification benefit that the main systems of a building are included for similar tax treatment
  • also means that assets that were previously treated as part of the building (and so did not generally qualify for any PMAs/WDAs), will now qualify for WDAs at 10 per cent a year.
  • In addition, because these systems are now classified as P&M, many businesses may now be able to claim 100 per cent first-year allowances (FYAs), when their expenditure on these systems includes specific items on the ‘Green Technology’ ECA list (under sections 45A and 45H of CAA, CA23135 and CA23140).

The water industry and electricity undertakings

The inclusion of cold water and electrical systems in the classification of integral features of a building or structure does not mean, for example, that the water processing and supply systems of the water industry, or the electricity generating and supply systems of an electricity undertaking, count as the cold water or electrical system respectively, ‘of a building or structure’. In the case of both supply industries, their assets consist of a wide range of things (including structures that may qualify for industrial buildings allowances, P&M assets and assets that may not qualify for any capital allowances). In other words, the assets do not comprise a single system falling within List C of section 23. So the removal of cold water and electrical systems from list C to the ‘integral features’ list has no particular or unique bearing on these businesses’ tax treatment, compared with other businesses.

A space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system

Once again, these systems are not specifically defined, so the words used take their ordinary meaning. This description is, of course, the description that previously appeared at item 3 of List C at S.23(3) CAA01, so it does not involve the creation of a new concept or definition, simply the transfer of expenditure on an asset falling within this description from list C to the new ‘integral features’ classification.

A lift, an escalator or a moving walkway

Once again these words take their ordinary meaning and have simply been removed from item 6 of List C at S.23(3) to the new ‘integral features’ classification in S33A of CAA01.

External solar shading

In the run up to the 2007-08 public consultation on the FA08 Business Tax reform package, including the new ‘integral features’ classification, key stakeholders suggested that two environmentally beneficial features of buildings, namely external solar shading and active facades, should be included within the new integral features classification. S.33A includes expenditure on the first but not on the second asset.

This is because it is already accepted that the external skin of the active façade system is not eligible (as it is basically a window and so excluded by section 33A (6) CAA01), but that the inner skin is eligible, because it is, in effect, creating a duct within which the cooling/heating air circulates. In short, the relevant parts of these systems already qualify as ‘integral features’, by virtue of being considered part of the air cooling or heating systems of the building, so there is no need to specify this expenditure separately in the list.

General: power to change the list

S.33A includes a Government power to add to the list by Treasury Order, a feature of a building or structure expenditure on the provision of which would not otherwise qualify as expenditure on plant or machinery, and to remove any asset from the list that would qualify for plant and machinery allowances without being included in the list.