Chapter CA20070
| Published date | 16 April 2016 |
| Record Number | CA20070 |
Professional fees, such as survey fees, architects’ fees, quantity surveyors’ fees, structural engineers’ fees, service engineers’ fees or legal costs, only qualify for PMA as expenditure on the provision of plant or machinery if they relate directly to the acquisition, transport and installation of the plant or machinery and as such are part of the expenditure incurred on the provision of the plant or machinery.
The same rule of law applies to preliminaries. Preliminaries are indirect costs incurred over the duration of a project on items such as site management, insurance, general purpose labour, temporary accommodation and security.
Where preliminaries and professional fees are paid in connection with a building project that includes the provision of plant or machinery, only the part, if any, which relates to services that can properly be regarded as on the provision of plant or machinery can be qualifying expenditure for PMA.
Establishing the part which relates to such services needs to be determined on a case by case basis. There is no one correct answer for all cases. For some cases it may be necessary to carry out a detailed analysis of the individual costs to determine whether, or the extent to which each should properly be apportioned to particular plant or machinery expenditure. In other cases, it may only be possible to apportion the costs between items which do, or do not, qualify for PMA. (This is sometimes called “the pro rata approach”).
This was said at paragraph 92 of the Upper Tribunal decision in JD Wetherspoon v HMRC Commissioners [2012] UKUT 42(TCC):
‘Preliminaries are, by their nature, items of overhead expenditure which cannot be, or which have not been, attributed to any single item in the building project. Some, like insurance, are inherently incapable of being so attributed. Others, like scaffolding, may be capable of specific attribution, but the time and cost involved in the process of specific attribution is often disproportionate to the amount at stake. Thus, apportionment of preliminaries between items which do, or do not, qualify for capital allowances is the only solution in relation to un-attributable preliminaries, and may be the sensible solution where attribution is uneconomic.’
For most small construction projects ((This content has been withheld because of exemptions in the Freedom of Information Act 2000) ) the use of the pro rata approach will generally be acceptable (unless it is clear that an apportionment...
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