The Upper Tribunal (UT) decision which found in favour of the taxpayer has been reversed in the Court of Appeal. Given there are relatively few cases where a complex structure has been held to function as plant, some of the remarks previously made by the UT had been helpful for taxpayers when making capital allowances claims for items which although on the face of it, appeared structural in nature, also performed an important function for the business. The UT previously concluded that tests had been established too narrowly and that more weight should have been applied to the main function of an asset rather than just its appearance.
The Court of Appeal’s findings
The Court was asked to consider HMRC’s appeal on three grounds and Urenco’s cross-appeal on two grounds. The verdict found predominantly in favour of HMRC, with much of the First-tier Tribunal (FTT)’s decision, which had been overturned at the Upper Tribunal (UT), being reinstated. Urenco have been refused leave to appeal to the Supreme Court.
Key findings were that most of the expenditure incurred by Urenco on the construction of their nuclear decommissioning facility would not qualify for plant and machinery allowances except for the Kiln Facility and Condenser Facility and certain plinths that were determined to have specific (and sometimes passive rather than active) functions within their trade. The facilities were found to be within the definition of a building at s21 CAA 2001, even though the design and construction of the facilities were specialist in nature and essential for such key functions as health and safety.
One ground of cross-appeal Urenco did win related to the distinction between the wording “expenditure on” and “expenditure on the provision of” items in List C, s.23 CAA2001. It was held that “expenditure on the provision of” any item within List C could qualify, and was not narrowed by the difference in wording, but merely an unintended consequence of the combination of lists and was an oversight during the Tax Law Rewrite Project. Although untested, this could potentially widen claims relating to Items 1-21 of List C and lends weight to claims on indirect expenditure associated with these List items.
Urenco’s second ground of cross-appeal, relating to a wider reading of Item 22, on List C – “The alteration of land for the purpose only of installing plant or machinery” to include buildings necessary to house plant and machinery, lost. The Court held that it would undermine the restrictions in s21 on claiming plant and machinery allowances on buildings. The Court’s view was that they were specially designed safety significant settings for the operations carried out within, and therefore not “only” for the installation of plant and machinery, but also to protect operatives, the public and the environment by providing premises/a setting to house the plant and machinery and carry out the trade.
What does the Court of Appeal decision mean for capital allowances claims?
This case adds to the plant vs premises debate and clarifies how the words “on the provision of’” are to be applied to section 23, List C. There are significant judgmental areas when preparing capital allowances claims and this case shows that HMRC will seek to challenge and restrict capital allowances available to taxpayers. Where you have significant capital expenditure, Menzies can help to prepare robust claims underpinned by relevant technical analysis, whilst optimising the tax savings available. For help with your capital allowances claims, please get in touch with your usual Menzies contact or Emma McCartney
For more details on our bespoke capital allowances services please contact Natasha Spicer or Emma McCartney.
