Corporation tax — Improvements — Expenditure on mezzanine floor and lighting in warehouse — Whether structures passed “premises” test for capital allowance purposes — Whether structures were “plant” — Revenue refusing taxpayers’ capital allowance claims — General Commissioners accepting taxpayers’ contention that the structures were plant — Revenue appealing to High Court against that decision — Appeal dismissed in relation to structures — Appeal allowed on lighting
These two appeals were consolidated as they raised the same question for decision. In Bridisco, the company carried on business as wholesalers and distributors of electrical goods principally from its London warehouse in White Hart Lane, London N17. To increase storage space therein it erected four mezzanine floors covering about 60% of the warehouse area. These consisted of wooden flooring on free-standing platforms standing on steel pillars bolted to the warehouse floor. Ancillary lighting was installed beneath the mezzanine floors to illuminate the area thereunder. Offices were situated on the ground floor and a video display unit on the mezzanine floors. A staircase provided access between the ground and mezzanine floors. Goods were stored on the ground floor of the warehouse by means of high-rise racking and on the mezzanine floors by storage on the floor and on low racking. The mezzanine floors had been erected because of the flexibility they afforded. During 1989 one complete mezzanine floor and part of another were removed and replaced by high-rise racking. The company appealed against a corporation tax assessment for its accounting period ended March 31 1987 following the Revenue’s refusal of its capital allowance claims in respect of the mezzanine floors and lighting.
In the Quick case, the company carried on business as a footwear wholesaler and operated from a warehouse in Hennock Road, Marsh Barton Trading Estate, Exeter. That was originally a single-storey warehouse, but as more storage space was required the company erected a mezzanine platform therein covering about one-third of the area of the warehouse about nine feet above floor level. To provide further storage space a larger platform was subsequently erected as an extension to the previous mezzanine platform. Lighting was installed thereunder. The structure consisted of a horizontal steel-grid platform covered with industrial grade chipboard flooring panels. It was supported by vertical steel columns, which were bolted to the warehouse floor. It was twice the size of the original platform (from which it was virtually indistinguishable) and together they covered most of the area of the warehouse floor. The structure rested for the sake of stability on a plate bolted to the wall along one side of the warehouse. A work counter and offices were situated at one end of the warehouse floor. A stairway permitted access between the structure and the warehouse floor. Goods were stored in rows of storage racking or in large packing cases on the structure and on the original warehouse floor. The company appealed against the Revenue’s refusal of capital allowance claims in respect of the structure and lighting thereunder.
The General Commissioners allowed the company’s appeal in each case and the Revenue appealed to the High Court against both decisions. The Revenue argued that both the structures and the lighting were part of the premises in which the companies’ businesses were carried on rather than equipment with which they were carried on. The test was whether the structures had become part of the premises or the setting in which the businesses were carried on (“the premises test”).
Held The appeal in each case was dismissed in respect of the structures, but allowed in respect of the lighting.
1. In the case of Wimpey International Ltd v Warland [1988] STC 149, Hoffmann J had considered the premises test and said that the question was not whether an item had become part of the building for purposes of real property law or a fixture for purposes of the law of landlord and tenant: see also Yarmouth v France (1887) 19 QBD 647; Inland Revenue Commissioners v Scottish & Newcastle Breweries Ltd [1982] 1 WLR 322. The test was a question of fact and degree to which some of the relevant considerations would be: whether the item appeared visually to retain a separeate identity, the degree of permanence with which it had been attached, the incompleteness of the structure without it and the extent to which it was intended to be permanent or whether it was likely to be replaced within a short time.
2. The issue in the present cases was whether the structures passed the premises test. In the Quick case the Commissioners had been referred to the relevant authorities (see also Cole Brothers Ltd v Phillips [1982] 1 WLR 1450); and although they had considered certain matters to be of particular importance which were not so important and not conclusive, they could not be said to have made an error of law. The court might not have reached the same conclusion, but it could not be said that the Commissioners’ decision that the structure was plant was one which they were not entitled to reach.
3. The decision in Bridisco was stronger in that the structure covered a smaller proportion of the warehouse floor area than in Quick and part of the installation was in fact removed to another warehouse. It followed that the structure there was also plant.
4. As regards the lighting, it had been installed to provide a normal level of illumination beneath the structures erected and could not be regarded as plant in either case.
Launcelot Henderson (instructed by the Solicitor for the Inland Revenue) appeared for the Inland Revenue; Giles Goodfellow (instructed by Speechly Bircham and Whitemans, of Gloucester) appeared for the taxpayers, Bridisco Ltd and Henry Quick Ltd.