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Cheshire Cavity Storage Upper Tribunal Case – what is plant?

Cheshire Cavity Storage Upper Tribunal Case

Upper Tribunal further clarifies distinction between plant and premises for capital allowances purposes.

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Harinder Soor

Partner – Claims and Incentives

KPMG in the UK

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The Upper Tribunal’s (UT) ruling in (1) Cheshire Cavity Storage 1 Limited and (2) EDF Energy (Gas Storage Hole House) Limited v The Commissioners for HM Revenue and Customs [2021] UKUT 0050 (TCC) affirms the lower court Judgment and provides further guidance as to when an asset should be considered, in common law, as plant for use in a business rather than the premises in which a business is carried on. This is a fine distinction which has been ruled on many times before, but the UT in this case chronologically reviewed the prior case law and came to a clear conclusion. Capital allowances are available on ‘plant and machinery’ used within businesses, however, the question of what exactly this means is somewhat less than straightforward. While the definition of machinery is relatively well-understood, much litigation has taken place over many years on the question of what, exactly, constitutes plant.

The foundational case when considering this is an 1887 case titled Yarmouth v France 19 QBD 64, a negligence claim relating to an injury caused by a horse, which produced the definition of plant still referred to: that plant is “whatever apparatus is used by a businessman for carrying on his business”.

While this provided some clarity, disputes frequently arose between HMRC and the taxpayer where the distinction between plant (allowable) and premises (not generally allowable) arose, and over the years courts were called upon to decide this distinction in relation to a number of assets including:

  • Moveable partitions (plant - Jarrold (Inspector of Taxes) v John Good & Sons Ltd [1963] 1 WLR 214);
  • Dry docks (plant - IRC v Barclay, Curle & Co. Ltd. (1969) 1 All ER 732);
  • Swimming pools (plant - Cooke (Inspector of Taxes) v Beach Station Caravans [1974] STC 402);
  • Grain silos (plant - Schofield (Inspector of Taxes) v R & H Hall Ltd [1975] STC 353);
  • Boats used as restaurants (premises - Benson (Inspector of Taxes) v Yard Arm Club Ltd [1979] STC 266);
  • Immovable quarantine kennels (premises - Carr (Inspector of Taxes) v Sayer [1992] STC 396); and
  • Car wash facilities (premises - Attwood v Anduff Car Wash Ltd [1997] STC 1167).

One of the key principles established in this line of cases is that it matters how the asset is being used in the taxpayer’s business. For example, a boat used to transport goods will generally be non-controversial as an item of plant. However, when the function of the boat changes to being the setting for a floating restaurant, the courts found that it was now merely the premises in which the business was being carried on.

It was this which caused problems for the taxpayer in the First-tier Tribunal, and again in the UT. Although the taxpayer could argue a plant-like function to the cavities in question, their main function was held to be the storage of gas, and thus the conclusion was that they were simply the premises in which the trade was being carried on.

Many recent cases, such as the SSE Generation case, have focused in detail on the statutory provisions contained in s.21-23 CAA2001. This case serves as a useful reminder that before the analysis gets to this point, any expenditure on which plant and machinery allowances are being claimed must meet the overarching provision in s.11 CAA2001 that “it is capital expenditure on the provision of plant or machineryfor the purposes of the qualifying activity carried on by the person incurring the expenditure”. This is a matter of common law and was emphatically dealt with by the UT.

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