A recent FTT case considers the meaning of a building for capital allowances purposes, and when assets can be treated as being plant.
In Urenco Chemplants Ltd and another v HMRC, the Urenco group (Urenco) spent £1 billion upgrading a facility to handle and process ‘Tails’ (radioactive by-products of uranium enrichment) which had to include significant safety provisions to provide radiation shielding, containment and to be earthquake-proof. This included expenditure on external and internal radiation shield walls, steel frame support structure, radiation shield roof, raft slab, roof cladding and platforms and stairs for equipment at various buildings on the site. Urenco claimed plant and machinery allowances with respect to this expenditure but HMRC disagreed. While the facts of the case are quite specific, this case has a much broader implication, particularly for claims relating to expenditure on plinths, access hatches, etc. relating to certain assets within List C s23 Capital Allowances Act 2001 (CAA2001).
The First-tier Tribunal (FTT) was required to analyse whether this expenditure should be treated as plant under the CAA2001. For the purposes of the analysis, the court generally grouped the assets where they formed a single structure (e.g. walls, roof and slab), although the plinths, stairs, access platforms and internal walls where the seismic qualification was incidental to the purposes of shielding operations were assessed separately.
To determine whether the assets in question were plant, the court analysed each asset against two long-established case law tests – the Functional Test and the Premises Test. To be considered as plant under these tests, the asset has to be performing a function within the business, and also has to not be merely the setting in which a business is carried on. The majority of the assets in question were found to be performing the function of premises rather than a specific function within the business. However, the raised platforms and plinths for enabling rails for transportation of cylinders of Tails, the kiln facility structure specially designed to hold equipment, the air sealed crane access hatch for the purpose of installing plant and the concrete plinth to support the hopper were found to be plant under common law.
The next step in the analysis is determining whether the expenditure is on a building under s21 CAA2001. This would prima facie exclude expenditure from qualifying, subject to the carve-outs in s23. The legislation provides a list of items which are generally to be treated as buildings and the judge also looked to the common meaning of a building. Under this analysis, all the assets in question were deemed to be ‘buildings’ under s21.
Finally, the court considered whether the assets in question fall within any of the exceptions in s23 CAA2001. The specific items in the list which Urenco relied on were exemptions for ‘machinery’, ‘manufacturing or processing equipment’ and ‘the alteration of land for the purpose only of installing plant or machinery’. The judge here drew a distinction between provisions within the Capital Allowances Act, which refer to expenditure ‘on’ these assets, and others, which refer to expenditure ‘on the provision of’ the assets. In this case, the items pointed to within List C all refer to the expenditure ‘on’ the assets. Accordingly, because the assets in question in this case were not on the ‘machinery’ or ‘manufacturing or processing equipment’ themselves, even if they were necessary for the functioning of it, the expenditure was deemed not to be saved by s23.
While the facts of the case are quite specific, this case has a much broader implication, particularly for claims relating to expenditure on plinths, access hatches, etc. relating to certain assets within List C. It should be noted that many common categories where this may arise (most notably integral features under s33A) do refer to expenditure ‘on the provision of’ assets, and therefore such expenditure may be eligible. Similarly, expenditure on existing buildings may also qualify under s25, which provides for the alteration of existing buildings for the purposes of installing plant and machinery.
The full decision can be found here.
For further information, please contact:
© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.