Supplementary memorandum submitted by
John Godfrey (Pigs 14a)
IMPACT OF ABOLITION OF AGRICULTURAL BUILDINGS
ALLOWANCES
1. Farm buildings especially pig buildings
have a comparatively short life. I was round one of our units
last week and saw roof sheets totally rotten on buildings that
were put up nine years ago.
2. The Chancellor in his budget speech proposed
a new capital allowance of 10% for integrated fittings (this still
has to be defined). It is very important that ventilation, feed
systems, refridgeration units etc are defined as plant not fittings.
They have a very short life & a halving of the new rate of
20% to 10% on reducing balance would be a very severe blow.
3. Pigs are very destructive and if there
is any hole or crack in the fabric of a building they will work
at it making it larger and larger.
4. The buildings were erected in the expectation
of claiming capital allowances.
5. 20% of expenditure (£600k) relates
to the stall& tether ban, 8% to other pig welfare,11% improved
productivity, 40% to improving potato quality, 18% purchases from
former owners and 6% other.
6. In addition to the schedule below our
partnership farms will have £122,885 of unclaimed building
allowances after 5.4.07.
7. Farm buildings depreciate they don't
increase in value. If you are buying an arable farm apart from
a very good house the buildings make very little difference to
the value.
8. On pig units after a period of 10 years
the cost of maintaining buildings continues to increase to such
a point that it is better to replace them.
9. We will have approximately £2,209,000
allowances unclaimed after 5.4.07 and assuming we don't erect
any more buildings after allowances for 2008—3%, 2009—2%,
2010—1% we will have approximately £2,118,000 of unclaimed
building allowance that at the new tax rate of 28%, assuming we
make profits, is an additional £593,000 tax to pay that will
not be reinvested in the business (see schedule below for the
major company).
CALCULATION SHOWING
THE ADDITIONAL
COSTS OF
THE PROPOSED
TAX CHANGES
| ABA's |
| Reduction
in
corporation
tax liability
| |
| PRE ABOLITION | £ |
@21% | @29.75 | @28%
|
Tax written value at 5 April 2007 |
1,972,910 | 414,311 | 586,941
| 552,415 |
| ABA's |
| | |
| POST ABOLITION | £
| | | |
| Tax written value at 5 April 2007 | 1,972,910
| | | |
| Financial Year 2007-08 ABA | -116,783
| 24,524 | 34,743 | 32,699
|
| Financial Year 2008-09 ABA | -87,587
| 18,393 | 26,057 | 24,524
|
| Financial Year 2009-10 ABA | -58,392
| 12,262 | 17,371 | 16,350
|
| Financial Year 2010-11 ABA | -29,196
| 6,131 | 8,686 | 8,175
|
| Residue of expenditure on which tax relief lost
| 1,680,953 | |
| |
| Increase in corporation tax liability |
| 353,000 | 500,083
| 470,667 |
| |
| | |
NOTES IN
RESPONSE TO
THE CHIEF
SECRETARY TO
THE TREASURY'S
LETTER
1. Agricultural building allowance has not acted as a
significant distortion on investments in buildings and the argument
that tax relief is available on the cost of repairs and insurance
is irrelevant. The logic of the argument would mean that there
should be no tax relief on any capital expenditure which would
include plant and equipment as their repair and insurance are
an allowable expense against tax.
2. Taxpayers who already have buildings that were constructed
in the expectation of tax relief are being penalised by legislation
that is in effect retrospective.
3. As the cost of buildings already constructed have
already been agreed with the Inspector of Taxes, I cannot see
that abolishing building allowances does much to simplify the
system as the allowance figure is the same each year and therefore
I cannot see any compliance burden.
4. It is fine to say it has been phased in over four
years, but buildings put up over the last 20 years will lose tax
relief. (In our case assuming current tax rates it means that
we will have to pay huge increases in tax with the consequent
effect on our ability to reinvest in buildings).
5. The 100% annual investment allowance while welcome
and will help to finance the purchase of plant and machinery.
6. No account has been taken by the Treasury that agricultural
buildings unlike many industrial buildings cannot be used for
a variety of uses. Pig and poultry buildings are specialised and
have no other uses. They are also on sites that will never be
developed and do not increase in value and therefore do not distort
commercial property decisions. Most intensive livestock buildings
have a relatively short life and will be replaced after a period
of about 15 years.
7. We are spending large amounts of money replacing and
upgrading our buildings to reduce their environmental impact,
this change in the tax rules will slow our investment which is
contrary to the Treasury analysis.
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