Electricity substation — Structure holding equipment for carrying on business of electricity company — Whether substation was “plant” for purposes of claiming writing down allowances — High Court holding substation was “premises” where trade carried on and did not attract capital allowances
The taxpayer’s electricity substation was 2 m below the paved surface of the south side of Leicester Square, London WC2. It measured internally just over 12 m from top to bottom, 43 m from east to west and 18 m from north to south. Electricity passed through the substation to join a network serving west central London. The only visible signs of the substation on the surface were three grilles, which operated as air intakes, and three hydraulically operated hatches, each set into the paved surface of Leicester Square. One of the hatches served as an entrance for personnel, another as an emergency access and exit hatch and the third as an access hatch for plant. The substation was unmanned except to carry out maintenance work.
The taxpayer claimed that the whole of the capital expenditure incurred in the provision of the substation qualified for writing down allowances in calculating its tax liability. The expenditure in question included works preparatory to the construction of the substation such as services diversion, site hoardings and accommodation, cranage and excavating the site and the construction of the substation itself.
A question arose whether the substation was a building or structure which could be regarded as plant for purposes of capital allowances. The revenue distinguished between expenditure on “plant”, used for the purposes of the taxpayer’s trade, which it allowed; and on “premises”, ie the structure of the substation and its components, which it was not willing to allow. On appeal a special commissioner, who visited the substation, upheld the taxpayer’s claim to capital allowances in respect of the entirety of its capital expenditure on the provision of the substation. The revenue appealed.
Held The appeal was allowed.
1. The fact that the substation was specially designed for the taxpayer’s trading activity, and could not sensibly be used other than for the purposes of that activity, did not mean that the structure of the substation was plant. Conversely, the fact that it was a substantial fixed structure, with a roof and inner and outer walls and floors, and had in it plant used for the purposes of the taxpayer’s business, did not mean that it must be regarded as premises rather than as plant.
2. The essential question was whether what was identified before the special commissioner as the structure of the substation, as distinct from the equipment within, could reasonably be called apparatus with which that business was carried on as opposed to the premises in which it was carried on: see Gray (HMIT) v Seymour’s Garden Centre [1993] EGCS 72.
3. One had to ask what was the function of the structure as a whole. The special commissioner had failed to ask himself what was the plant-like function which the structure as an entity performed in the taxpayer’s trading activity. If he had done so, the true and only reasonable conclusion he could have come to was that the structure functioned as premises in which the activity was carried on.
Michael Furness (instructed by the solicitor to the Inland Revenue) appeared for the Crown; Peter Whiteman QC (instructed by Denton Hall) appeared for the taxpayer.
