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Temporary problem: now removed. Structures and buildings allowance.

9 May 2019

 

The rules governing industrial buildings allowance (“IBA”) provided for certain consequences to ensue on a building ceasing to be used.  However, the consequences were very different according to whether the cessation of use was temporary or permanent: the difference, in the recent case of Shaw v HMRC [2019] UKFTT 280 (TC) was tax relief worth some £5m.

HMRC asserted that cessation of use was “temporary” only if the building was at some subsequent date (even several years later) brought back into use, as a matter of fact. The problem with that interpretation is that the tax law assumed that you knew at the time at which you filed your tax return whether the cessation of use was permanent or merely temporary – which presented obvious difficulties to taxpayers bereft of a crystal ball.

But the taxpayer’s contention – that cessation of use of a building was “temporary” all the time that you retained the intention of using it in the future (in other words that “temporary” meant “intended to be temporary”) created its own set of problems.  In the end the tribunal decided that the draftsman simply hadn’t contemplated the difficulty that his drafting could create: that neither HMRC’s interpretation nor the taxpayer’s was ideal: but that HMRC’s was the “least worst” and therefore to be preferred.

Readers will have spotted the use of the past tense throughout.  This is because IBA was given its quietus several years ago: that cases are still coming before the Tribunal is a testimony (if that is the right word) to the delays that infest tax litigation.  Happily, the rules on the new relief for capital expenditure on the construction of new non-residential buildings and structures (styled “SBA”: structures and buildings allowance) which were recently published in draft do not replicate the “temporary cessation” problem of IBA.  As HMRC put it:

Responses to consultation suggested strongly that provisions on disuse could give rise to onerous calculations and significant record keeping obligations for businesses. Many argued that, with little commercial incentive to keep buildings unoccupied, long periods were unlikely to arise in practice. On that basis, relief will instead continue to be available, with no prohibition for periods of disuse. This approach ensures legitimate expenditure remains recognised and avoids deterrence or reduction of potential investment.

The new relief applies to qualifying expenditure incurred under contracts entered into on or after 29 October 2018.  For more details of SBA, please get in touch with your usual BKL contact or use our enquiry form.