Plant and Machinery

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.

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

### What is the primary characteristic of plant and machinery? - [x] Equipment used for carrying out business operations - [ ] Items bought or made for resale - [ ] Personal belongings of the business owner - [ ] Fixtures and fittings in a building > **Explanation:** Plant and machinery are characterized by equipment that is used to carry out regular business operations and not for resale. ### Does capital allowance apply to plant and machinery? - [x] Yes, plant and machinery qualify for capital allowance - [ ] No, they do not qualify for any tax relief - [ ] Only partly, for some selective items - [ ] Only in specific industries > **Explanation:** Plant and machinery qualify for capital allowances, enabling businesses to deduct permissible amounts from taxable profits. ### Which of the following would typically not be classified as plant and machinery? - [ ] Office computers - [ ] Company vehicles - [ ] Security cameras - [x] Inventory stock > **Explanation:** Inventory stock, which is bought or made for resale, does not qualify as plant and machinery. ### What is the main legislative reference used for defining plant and machinery? - [ ] Company owner's discretion - [x] The case of *Yarmouth v France* (1887) - [ ] Recent business tax reforms - [ ] Annual treasury budgets > **Explanation:** The working definition of plant and machinery is often derived from the taxation case *Yarmouth v France* (1887). ### Can the decorative items used to create business ambience be classified as plant and machinery? - [x] Yes - [ ] No, decoration does not count - [ ] Only if explicitly mentioned in tax legislation - [ ] Only in specific cases like art galleries > **Explanation:** Yes, decorative items used for creating business ambiance are recognized as plant and machinery, contributing to business operations. ### Are buildings entirely excluded from plant and machinery classification? - [ ] Yes, always - [x] No, there are specific exceptions - [ ] Only office buildings qualify - [ ] Only residential buildings qualify > **Explanation:** Buildings are generally not classified as plant and machinery, but there are exceptions, particularly for security features. ### Why would a company apply for capital allowances on plant and machinery? - [ ] To increase their asset holdings - [x] To achieve tax deductions - [ ] To avoid paying taxes altogether - [ ] To inflate the business value artificially > **Explanation:** Companies apply for capital allowances on plant and machinery primarily for tax deductions, leveraging favorable tax treatment for business investments. ### Does plant and machinery include fixtures and fittings in building premises? - [ ] Always, without exception - [x] Generally no, but exceptions exist such as security features - [ ] Only for newly installed fittings - [ ] For every type of business > **Explanation:** Generally, fixtures and fittings are not included under plant and machinery, with certain exceptions like security installations in buildings. ### What type of law primarily governs plant and machinery's tax treatment? - [x] Tax law - [ ] Property law - [ ] Contract law - [ ] Employment law > **Explanation:** The tax treatment of plant and machinery is primarily governed by tax law, which prescribes capital allowances and other pertinent regulations. ### How is software categorized in relation to plant and machinery for a business? - [x] It can be categorized as plant if it is necessary for business operations - [ ] It cannot be classified as plant and machinery - [ ] Only hardware counts as plant - [ ] It is always considered independent from other plant items > **Explanation:** Business software necessary for operations can be categorized as plant and machinery, provided it fits the requirements of functional, lasting usage for the business.

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!

Plant and Machinery