Plant and Machinery: In-Depth Definition
Plant and machinery, as per tax law, encompass various types of equipment that businesses require to operate efficiently. Generally, these assets qualify for capital allowances, which can help businesses achieve tax deductions on their investment in plant and machinery. Although not explicitly defined in tax legislation, plant and machinery are broadly interpreted from the landmark taxation case Yarmouth v France (1887), defining them as:
“Whatever apparatus is used by a businessman for carrying on his business—not his stock in trade which he buys or makes for resale: but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in the business.”
Key Points
- Definition Scope: Equipment utilized to conduct regular business activities is classified as plant and machinery.
- Capital Allowances: Plant and machinery can qualify for capital allowances, thus supporting tax-efficient business investments.
- Non-inclusivity: Stocks in trade or assets bought or made specifically for resale do not fall under this category.
- Item Instances: Includes equipment such as computers, vehicles, office furniture, law books used by professionals such as barristers, and decorative items like sculptures that create business ambiance.
- Building Exceptions: Generally, buildings and their parts aren’t considered plant; however, there are exceptions for certain features like security equipment.
Examples
- Office Computers: Computers and related peripherals used daily in an office for business operations.
- Company Vehicles: A fleet of vehicles used for delivering goods or employees commuting for business purposes.
- Law Books: Legal texts used by a barrister to facilitate their practice.
- Decorative Items: Sculptures or paintings placed in the office to create an aesthetically pleasant environment.
- Security Systems: Security cameras and alarm systems installed in buildings for safety purposes.
Frequently Asked Questions
What is the primary use of plant and machinery in a business?
Plant and machinery are mainly used for carrying on business operations, and not for stock in trade. They aid in the consistent and effective execution of business tasks.
Do all office furnishing items qualify as plant and machinery?
Not all; only those furnishings that meet the criteria of being used for business operations qualify. For example, office desks and chairs used by employees qualify.
Are buildings classified as plant and machinery?
Typically, no. Buildings and parts of buildings do not qualify; however, certain exceptions exist, such as safety and security features incorporated within the premises.
What is a capital allowance?
Capital allowance is a tax relief available on certain types of capital expenditure, including plant and machinery, allowing businesses to deduct the permissible amount from their profits for taxation purposes.
Can software be considered plant and machinery?
Yes, software necessary for business operations can qualify as plant, provided it fits into the functional and lasting usage requirements established.
Related Terms
Capital Allowances
Tax relief provided to a business for specific types of capital expenditure. It reduces the overall taxable profit of a business.
Property, Plant, and Equipment (PPE)
A term that combines the physical, long-term assets used in operations, including buildings, machinery, and land.
Online Resources
Suggested Books
- “Tolley’s Tax Guide” by Claire Hayes & Ruth Newman
- A comprehensive guide on UK tax law that includes discussions on plant and machinery.
- “Principles of Business Taxation” by Carol V. Fischer
- A detailed book diving into various aspects of business taxation, including capital allowances.
- “Taxation of Company Reorganisations” by Malcolm Gunn
- This book deals with the tax implications of corporate structures and assets, including plant and machinery.
Accounting Basics: “Plant and Machinery” Fundamentals Quiz
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