Non-domestic rates – Valuation – Valuation for Rating (Plant and Machinery) (England) Regulations 2000 – Appellant operating retail store selling mainly refrigerated and frozen food – Air-handling system installed in store to maintain store temperature at acceptable level for functioning of refrigerated cabinets – Whether that system to be ignored when valuing premises for rating purposes – Exception to para 2 of Class 2 of schedule to 2000 Regulations – Whether system used “in connection with services mainly or exclusively as part of manufacturing operations or trade processes” – Appeal dismissed
The appellant operated a retail store in Liverpool selling mainly refrigerated and frozen foods. The store comprised a small retail warehouse which the appellant held on a 10-year lease. The premises had been let in a shell condition and, as part of its fitting-out works, the appellant had installed an air-handling system which was designed and programmed to maintain the store temperature, during trading hours, at an acceptable level both for the functioning of the open-fronted, integral refrigerated cabinets in which most of the food was displayed and for the comfort of staff and customers. The temperature was reduced outside trading hours.
The respondent valuation officer determined that the premises should be entered in the non-domestic rating list with a rateable value of £108,000 with effect from April 2010. In reaching that decision, the respondent attributed a value to the air-handling system which had the effect of increasing what would otherwise have been the rateable value of the premises.
The appellant appealed against the respondent’s determination, contending that the air-handling system was plant or machinery “used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes”, within the exception to para 2 of Class 2 of the schedule to the Valuation for Rating (Plant and Machinery) (England) Regulations 2000, with the result that it had to be ignored in valuing the premises for rating purposes.
The Valuation Tribunal for England accepted that argument but its decision was subsequently reversed by the Upper Tribunal, which determined that the rateable value was £104,000.
In reaching its decision, the UT held that: (i) the defining characteristic of manufacturing operations and trade processes was activity bringing about a transition from one state or condition to another; (ii) neither the display or storage of goods, nor the creation of an environment conducive to the display or storage of goods in a retail warehouse, could ordinarily be said to involve any trade process; and (iii) it made no difference for that purpose that the environment appropriate to the storage and display of the goods of a particular retailer required more substantial or powerful equipment than was normally found in retail premises, or that that equipment depended for its efficient operation on the maintenance of a particular environment. The appellant appealed.
Held: The appeal was dismissed.
(1) The scheme of the 2000 Regulations was that the plant and machinery described in the four scheduled Classes was rateable as part of the hereditament. Class 2, which made rateable certain plant and machinery used in connection with services to the hereditament, contained a general exception for plant and machinery used “in connection with services mainly or exclusively as part of manufacturing operations or trade processes”. The items of plant and machinery enumerated as rateable in Table 2 under Class 2 includes all kinds of heating, cooling and ventilating, lighting, water supply, draining and hazard protection equipment. At first sight, therefore, it seemed that plant and machinery used to keep the air in a building within a particular temperature range would be “used in connection with services to the hereditament”, and therefore rateable. The exception for “plant or machinery… used in connection with services mainly or exclusively as part of manufacturing operations or trade processes” seemed to be directed towards services used as part of some manufacturing or process activity undertaken by the occupier on the hereditament.
(2) There was nothing to suggest that the underlying statutory purpose was to ensure that plant was rateable only to the extent that a notional landlord would usually provide it. Most service plant was rateable. Nor was it correct to say that, where plant was present in the hereditament to facilitate the particular business of the actual occupier, it was intended to be non-rateable. All heating, cooling and ventilating plant was present to facilitate the business, particular or otherwise, of the occupier. The question was when such a plant was used mainly or exclusively as part of a manufacturing operation or a trade process.
(3) While it was not possible to say that the common defining characteristic of all manufacturing operations and trade processes was activity bringing about a transition from one state or condition to another, they would normally be activities that had that effect. Manufacturing operations or trade process would normally include the creation, completion, repair or improvement of the subject matter of that activity. The part of para 2 of Class 2 on which the appellant relied was an exception, not a proviso and should be construed quite narrowly, and certainly not so broadly as to deprive the rateability provisions for service plant in the schedule to the 2000 Regulations of proper effect.
(4) The display of goods for retail sale was the antithesis of a trade process. The fact that the environment appropriate to the storage and display of the goods of a particular retailer required more substantial, powerful or even complex equipment than was normally found in retail premises did not turn plant and machinery used for cooling the air in, and ventilation of, the appellant’s store into “plant or machinery… used in connection with services mainly or exclusively as part of… trade processes”. Keeping food in its frozen state so that it could be sold was not any kind of trade process. The question was not whether the plant serves the hereditament or the tenant, but whether the plant was used in connection with services mainly or exclusively as part of a trade process. Retail warehouses undertook a trade but not normally any trade process, at least not in relation to keeping the shop or its equipment at an appropriate temperature.
Daniel Kolinsky QC and Luke Wilcox (instructed by TLT LLP, of Manchester) appeared for the appellant; Timothy Morshead QC and Zack Simons (instructed by the HMRC Solicitor) appeared for the respondent.
Sally Dobson, barrister
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