Taxation – Capital Allowances – Storage cavities – Appellants claiming capital allowances for cost of creating gas storage cavities – Respondent commissioners rejecting claim – First-tier Tribunal (FTT) holding expenditure not qualifying for capital allowances – Upper Tribunal upholding decision – Appellants appealing – Whether “premises test” wrongly applied to question whether cavities were items qualifying as plant – Appeal dismissed
The appellants’ business was the development, construction and operation of gas storage facilities in the UK. They operated such facilities on adjoining sites in Cheshire. An issue arose whether the appellants were entitled to capital allowances in respect of expenditure incurred on the introduction of water into salt bearing rock to dissolve the rock and create an impervious cavity, typically in a teardrop shape (leaching), and the displacement of the resulting brine by the introduction of gas (de-brining) to permit the storage of gas in the cavity.
The function of the cavities was to store gas taken from the national transmission system (NTS) safely and in a condition that would allow it to be returned to the NTS (or from which the appellants’ processing plant could restore it to a condition suitable to be returned to the NTS).
Section 11 of the Capital Allowances Act 2001 provided for allowances if a person carried on a “qualifying activity” and incurred “qualifying expenditure”. A trade was a “qualifying activity”. Expenditure was “qualifying expenditure” if it was capital expenditure on the provision of plant or machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure. The question for the court to decide was whether the expenditure on creating the cavities by a process of leaching and de-brining was incurred on “the provision of plant”.
The First-tier Tribunal (FTT) held that it was not: [2019] UKFTT 0498 (TC). The Upper Tribunal upheld that decision: [2021] UKUT 50 (TCC); [2021] STC 675. The appellants appealed contending, amongst other things, that if an item performed any plant-like function it necessarily qualified as plant.
Held: The appeal was dismissed.
(1) There was no statutory definition of “plant” but, in its ordinary sense, it included whatever apparatus was used by a business man for carrying on his business, not his stock-in-trade which he bought or made for sale; but all goods and chattels, fixed or moveable, live or dead, which he kept for permanent employment in his business. That excluded the premises or place in or upon which the business was conducted: Yarmouth v France (1887) 19 QBD 647 and Wimpy International Ltd v Warland [1988] STC 149 considered.
Whether an item qualified as plant was a question of fact and degree and required an evaluative exercise. The question in each case was whether the item functions as premises or plant. To answer that might involve deciding whether it was more appropriate to describe the item as apparatus for carrying on the business or as the premises in or upon which the business was conducted (the premises test): Wimpy followed.
(2) The fact that the building in which a business was carried on was, by its construction, particularly well-suited to the business, or was specially built for that business, did not make it plant. Its suitability was simply the reason why the business was carried on there. But it remained the place in which the business was carried on and was not something with which the business was carried on. The question was whether it would be more appropriate to describe the item as part of the premises rather than as having retained a separate identity: Wimpy v Warland [1989] STC 273 followed.
In the present case, the cavities were particularly well-suited to the storage of gas; and in some cases were specially formed for that purpose. But that did not make them plant. After leaching and de-brining, the resulting cavities were part of the land in the same way as a worked-out quarry or mine which might be filled with water and used for a variety of recreational or commercial activities. The happenstance that those cavities were underground made no significant difference. No man-made structure or equipment was introduced (planted) into the cavities. In order for expenditure on land to qualify as expenditure on plant, it had to be associated with something that was recognisable as plant, such as equipment or apparatus.
Although the land was no longer in its natural state, the alterations to it were not carried out for the purpose of receiving plant; they were carried out for the purpose of receiving the appellants’ stock-in-trade. Just as buildings did not cease to be buildings and become plant just because they were specially designed for a particular trade, so also the cavities did not lose their character simply because they had been formed to receive gas consisting of the appellants’ stock-in-trade.
(3) In any event, any “plant-like function” was not only incidental to the manner in which the cavities were created, but was also largely outside the appellants’ control, and not a common use. The cavities themselves were little more than receptacles in which gas could be stored at high pressure. Although, when circumstances were right (which was outside the appellants’ control) gas could free flow to or from the cavities, that was no more than an incident of the formation of the cavities. But even if that was a “plant-like function”, there was no solid support for the submission that if something performed any plant-like function it was necessarily plant: Gray v Seymours Garden Centre (Horticulture) [1995] EGCS 99; [1995] STC 706, Attwood v Anduff Car Wash Ltd [1997] PLSCS 219; [1997] STC 1167, Bradley v London Electricity plc [1996] STC 1054 and Shove v Lingfield Park 1991 Ltd [2004] STC 805 considered.
(4) Whether it was more appropriate to describe an item as apparatus or premises was clearly a value judgment and an appeal court should be slow to interfere. The appeal court did not carry out a balancing task afresh but had to ask whether the judge’s decision was wrong because of some identifiable flaw in the judge’s treatment of the question to be decided, such as a gap in logic, a lack of consistency or a failure to take account of some material factor, which undermined the cogency of the conclusion. In the present case, there was no legal error in the Upper Tribunal’s answer to the question posed.
Jonathan Peacock QC and Sarah Black (instructed by Enyo Law LLP) appeared for the appellants; Aparna Nathan QC (instructed by HMRC Solicitors Office) appeared for the respondents.
Eileen O’Grady, barrister
