Non-domestic rates – Valuation – Valuation for Rating (Plant and Machinery) (England) Regulations 2000 – Appellant operating retail warehouse selling mainly refrigerated and frozen food – Air-handling system (AHS) installed in warehouse to maintain temperature at acceptable level for functioning of refrigerated cabinets – Whether AHS 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 allowed
The appellant was a well-known supermarket operator, specialising in refrigerated goods. Its premises included a retail warehouse at Penketh Drive, Liverpool. The property 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 (AHS) 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: [2015] UKUT 14 (LC). That decision was upheld by the Court of Appeal: [2016] EWCA Civ 1150; [2016] PLSCS 320.The appellant appealed to the Supreme Court.
Held: The appeal was allowed.
(1) Under para 2(1) of Schedule 6 to the Local Government Finance Act 1988, the rateable value of a non-domestic hereditament was taken to be “an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year” on the basis of certain prescribed assumptions. The prescribed assumptions under para 2 of the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 included the assumption that any plant or machinery, if it belonged to any class listed in the schedule to the 2000 Regulations, was assumed to be part of the hereditament in or on which it was situated. The classes in the schedule were in effect exceptions to the general rule that the value of plant and machinery could not affect the estimated value of the hereditament for rating purposes. “Class 2” in the schedule consisted of: “Plant and machinery specified in Table 2 below… which was used or intended to be used in connection with services to the hereditament or part of it”, subject to the proviso, “other than any such plant or machinery which is in or on the hereditament and is used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes”. It was common ground that the AHS was covered by Table 2 and that it was used in connection with services to the hereditament. The only issue was whether the AHS was excluded from Class 2 by the proviso.
(2) The 2000 Regulations were derived from the recommendations of the Wood Report published in 1993. The advisory committee reviewed the law and practice relating to the rating of plant and machinery, with a view to updating and harmonising it throughout the United Kingdom. In the present case, both the Court of Appeal and the Upper Tribunal saw the proviso as an exception to be construed narrowly; and as referring to a process designed to bring about a transition from one state to another. That paid insufficient regard to the place of the proviso within the scheme of the regulations as a whole: it was and always had been an exception to an exception. It brought items of plant back into the scope of the general rule. The rationale was that, although they might provide a service to the building, their main or exclusive function was to provide a service to the activities of the trader within it. They were therefore more fairly considered as tools of the trade. Nothing in the Wood Report suggested that changes of language in the relevant provisions over time were intended to signal any substantive change. On the contrary, the intention was to retain the law substantially without alteration, while improving its draftsmanship.
(3) There was nothing in the word “process” itself implying a transition or change. It had various meanings. In its widest sense, it included anything done to goods and materials. A “trade process” was simply a process (in that wide sense) carried on for the purposes of a trade. In the context of the appellant’s trade, the word was apt to cover the continuous freezing or refrigeration of goods to preserve them artificially. The inclusion of “trade processes”, as an alternative to “manufacturing operations” could only be read as designed to widen the scope of the proviso to include other forms of trade and their processes. Since the services provided by the relevant plant had been held to be used “mainly or exclusively” as part of that trade process, they should be left out of account for rating purposes.
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.
Eileen O’Grady, barrister
Click here to read transcript: Iceland Foods Ltd v Berry (VO)
