Corporation tax – Capital allowances – Industrial buildings allowance – Storage – Appellant importing and selling hardware products – Stock housed in warehouse – Whether appellant using building for purposes of trade consisting of storage of qualifying goods – Storage held to be part of trade – Appeal allowed
The respondent was an importer and distributor of door and window hardware products, which it purchased from its Austrian parent company and sold in the UK. It operated from a large, state-of-the-art warehouse and distribution centre, in which it stored its stock. The respondent needed to hold a large and varied stock since designs changed frequently, the products were sold with a 10-year guarantee and products made for UK distribution differed from those made for the rest of the market.
The respondent claimed a capital allowance in respect of corporation tax, pursuant to section 3 of the Capital Allowances Act 1990, on the basis that its premises were an industrial building within section 18 of the Act and therefore eligible for industrial buildings allowances. The commissioners for Revenue & Customs refused that claim, but their decision was reversed by the special commissioners on appeal. A further appeal to the court was dismissed; the judge held that the use of the building did not satisfy the statutory conditions of section 18(1)(f)(i) or (2) of the 1990 Act because the buildings were not used for a trade, or part of a trade, that consisted of the storage of goods or materials. He found that the appellant’s trade was the importation and sale of goods, to which the storage was merely ancillary. That decision was reversed on the respondent’s appeal to the Court of Appeal, which held that storage formed part of the appellant’s trade since it played a distinct commercial role in the appellant’s business. The appellant appealed.
Held (Lord Scott and Lord Mance dissenting): The appeal was allowed.
There was an important distinction between a trade and an activity undertaken in the course of a trade. Where “part only of a trade” was relied upon as satisfying the conditions in section 18(1), that part had to be something that had the same type of characteristics as the trade as a whole. It could not simply be one of the activities carried out in the course of a trade, including those ancillary to or inherent in that trade. It had to constitute a viable section of a composite trade, which would still be recognisable as a trade if separated from the composite whole. That interpretation was more consistent with the language and structure of section 18 and was also a more practical approach. It was not sufficient to be able to isolate some activity carried on in the course of a vertically integrated trade, even if that activity was significant, separate and identifiable: Bestway (Holdings) Ltd v Luff (Inspector of Taxes) (1998) 70 TC 512 applied; Saxone Lilley & Skinner (Holdings) Ltd v Inland Revenue Commissioners [1967] 1 WLR 501 and Kilmarnock Equitable Co-operative Society Ltd v Commissioners of Inland Revenue (1966) 42 TC 675 distinguished. It was not possible to trade by storing one’s own goods.
Timothy Brennan QC and Akash Nawbatt (instructed by the legal department of Revenue & Customs) appeared for the appellants; Giles Goodfellow QC and James Rivett (instructed by Gregory Rowcliffe & Milners) appeared for the respondent.
Sally Dobson, barrister