Revenue Note for Guidance

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Revenue Note for Guidance

317 Treatment of grants

Summary

In general, capital allowances in respect of capital expenditure on industrial buildings or structures, machinery or plant and dredging are computed on the basis of the amount of expenditure incurred net of any grants received. However, in the case of certain machinery or plant, the “net of grant” restriction does not apply. This exception applies only where the machinery or plant is used by a company solely in the manufacture of processed food and is purchased by the company carrying on the food processing trade for use in that trade; it does not apply in the case of lessors or lessees of such machinery or plant.

Details

Definitions

(1) “food processing trade” is as a trade which consists entirely of, or partly of, the manufacture of processed food.

“processed food”: this definition is defined so as to limit the benefit of the exception to the treatment of capital allowances on a net of grant basis to machinery or plant used in genuine food processing. The processed food must be manufactured in the State in the course of a trade. The definition spells out the meaning of “manufacture” for this purpose so as to exclude any low-level handling or packaging activities or processes designed only to preserve or sterilise food or to influence natural processes by which food is produced.

Processed food must be food intended for human consumption as a food. Thus, animal foodstuffs are excluded as are medicines and other non-food items for human consumption. Food in the form of drink (for example, a meal substitute in the form of a drink) would come within the definition but spring waters, soft drinks and alcoholic beverages would be excluded by virtue of not being food.

To qualify as processed food, the food must be produced as a result of a mechanical process of manufacture which significantly alters the form and value of the raw materials used. Specifically ruled out as processed food are food products which have been subjected only to methods of accelerating or retarding natural processes such as growth, ripening or decay. Also ruled out is food subjected to a process which merely preserves it in its original state, or which sterilises it (such as pasteurisation) or similarly processes it.

Examples

The definition of “processed food” would exclude pasteurised milk, washed, graded and packaged produce which has not been subjected to any manufacturing process, frozen “fresh” fish which has been frozen whole without any other treatment, and whole fresh fruit irrespective of what process it has been subjected to.

The definition would include products such as butter or cheese, tinned, frozen or dried produce where the produce has been shelled, peeled, diced or otherwise altered in form, tinned fish, “fish-fingers”, “breaded plaice” and other fish which has been processed in some way, fresh meat, poultry, etc which has been butchered, cleaned or otherwise prepared for consumption, and bread and similar produce (though not commonly considered to be “processed” food, bread and similar produce could not reasonably be excluded from qualification).

“qualifying machinery or plant” is machinery or plant used solely in the course of manufacturing processed food.

Capital allowances to be given on a net of grant basis

(2) For the purposes of capital allowances under Part 9 (other than the initial allowance and wear and tear allowances in respect of machinery or plant under sections 283 and 284 for which special rules set out in subsections (3) and (4) apply), expenditure is treated as having been incurred by a person net of any grants received. Specifically, for those purposes, expenditure incurred by a person before 6 May, 1993 is not to be treated as having been incurred by the person in so far as it has been or is to be met directly or indirectly by the State, any statutory board or any public or local authority, while expenditure incurred by a person on or after that date is not to be treated as having been incurred by the person in so far as it has been or is to be met directly or indirectly by any other person.

Initial allowance and wear and tear allowances for machinery or plant

(3)(a) Except for certain transitional cases (see subsection (3)(b)) and certain machinery or plant provided for the food processing trade (see subsection (4)), expenditure incurred on or after 29 January, 1986 is, for the purposes of determining title to the initial allowance and wear and tear allowances in respect of machinery or plant under sections 283 and 284, treated as having been incurred by a person net of any grants received. Specifically, for those purposes, expenditure incurred by a person before 6 May, 1993 is not to be treated as having been incurred by the person in so far as it has been or is to be met directly or indirectly by the State, any statutory board or any public or local authority, while expenditure incurred by a person on or after that date is not to be treated as having been incurred by the person in so far as it has been or is to be met directly or indirectly by any other person; and, for the purposes of wear and tear allowances under section 284, the “actual cost” of any machinery or plant is the capital expenditure incurred on the machinery or plant as reduced by the amount of any expenditure which has been or is to be so met.

(3)(b) The above rule (subsection (3)(a)) does not apply where the expenditure is met by a grant which was approved on or before 29 January, 1986 by a Government Department, a statutory board or a public or local authority. Neither does it apply where the expenditure is met under the terms of an agreement which was the subject of negotiations which were in progress on that day with a Government Department, a statutory board or a public or local authority, provided that the grant was finally approved for payment not later than 31 December, 1986.

Machinery or plant in use for food processing trade

(4)(a) Where an initial allowance (section 283) or a wear and tear allowance (section 284) is to be made in taxing a company’s food processing trade in respect capital expenditure incurred on providing machinery or plant which is used solely in the manufacture of processed food, the “net of grant” rule in subsection (3) does not apply. Thus, the allowances in any such case are determined without deducting any grants received. It should be noted that this exception to the “net of grant” rule applies only where the machinery or plant is purchased by a company for use in its own food processing trade. It does not apply in the case of lessors of such machinery or plant since the exception applies only in taxing a food processing trade.

(4)(b) A lessee is in certain circumstances (see section 299) deemed for tax purposes to have incurred the purchase costs of machinery or plant leased by it. The reference in subsection (4)(b) to expenditure incurred by a company does not include any expenditure which it is deemed to have incurred in accordance with that section. Thus, lessees are also excluded from the exception to the “net of grant” rule.

Relevant Date: Finance Act 2021