The English pig industry - Environment, Food and Rural Affairs Committee Contents


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
1,972,910414,311586,941 552,415
ABA's
POST ABOLITION£
Tax written value at 5 April 20071,972,910
Financial Year 2007-08 ABA-116,783 24,52434,74332,699
Financial Year 2008-09 ABA-87,587 18,39326,05724,524
Financial Year 2009-10 ABA-58,392 12,26217,37116,350
Financial Year 2010-11 ABA-29,196 6,1318,6868,175
Residue of expenditure on which tax relief lost 1,680,953
Increase in corporation tax liability 353,000500,083 470,667


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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