It is no secret that claiming Capital Allowances on plant and machinery expenditure can be a complicated business. While claiming allowances on business equipment such as computers and chairs is straightforward, fully maximising a Capital Allowances claim on fit outs and property purchases is fraught with complexities.
Even seemingly the most basic question doesn’t have a simple answer, namely; just what is “plant and machinery”? To this day, there is no recognised definitive answer and a vast amount of case law and legislation have to be interpreted when considering the question.
One asset that has been found to be plant in case law and now mentioned in the Capital Allowances Act (CAA) 2001 is demountable partitions. However, there are restrictions that have to be considered before deciding whether a claim on demountable partition expenditure is possible. A recent High Court case on land law may allow more businesses to claim allowances on demountable partitions.
Demountable partitions; a background
Normal solid walls, metal and timber stud partitions are denied Capital Allowances as section 21 List A (1) of the CAA 2001. Assets included within List A are not qualifying and are not plant and machinery. However, section 23 CAA 2001 includes List C, which identifies assets that are not automatically deemed to be non qualifying by CAA 2001 s.21. Item 13 of List C is “Partition walls, where movable and intended to be moved in the course of the qualifying activity”.
CAA 2001 s.23, along with many parts of the CAA 2001 legislation, was essentially moulded by case law precedents. List C encompasses assets that were previously found to be plant and machinery by the Courts. Demountable partitions were held to be plant, and thereby included in List C, in the case of Jarrold (Inspector of Taxes) v John Good & Sons Ltd .
Jarrold v John Good & Sons Ltd involved a company that installed a number of movable internal partitions in their premises. The partitions were essentially fixed but could be moved by the business during the course of the trade to expand offices or create new areas as required. In actuality, the partitions were seldom moved but the Courts found the partitions to be plant as they were “apparatus with which the company carried on its business”. The courts made an important distinction that apparatus such as movable partitions are not excluded from being plant despite the fact they are part of the “setting”. Demountable screens, using similar tests as Jarrold v John Good, were also held as plant in the case of Leeds Permanent Building Society v Procter (Inspector of Taxes) .
HMRC’s own internal Capital Allowances manuals recognise the ruling of Jarrold v John Good & Sons Ltd but also advise that “The ‘John Good’ case does not mean that all moveable partitions are plant” and that movable partitions “need to possess mobility as a matter of commercial necessity” and it is also “worth checking whether they have in fact ever been moved”. (HMRC Capital Allowances Manual: CA21120).
Riverside Park Ltd v NHS Property Services Ltd  EWHC 1313
This recent High Court case involved a lease break clause dispute between a landlord and tenant. Riverside Park Ltd granted a 10 year lease to a trust under NHS Property Services Ltd, with a break clause within the 5th year of the lease term. The terms of the lease break were that NHS had to give 6 months notice and also to give vacant possession to Riverside on or before the lease break date. In this context, vacant possession meant that the property would be free of the tenant’s chattels and any people associated with the tenant.
Before the lease was granted, the premises were open plan. Riverside Park granted a license to alteration to NHS which included the installation of multiple internal partitions. These partitions were standard demountable metal stud partitions fixed to the underside of the landlord’s suspended ceiling and the top of the landlord’s raised flooring.
NHS, under the lease terms, served their notice to exercise the break. However, they did not remove the installed partitions. Riverside Park argued that the break was therefore not valid as, at the break date, NHS had not removed the partitions they had installed. NHS defended this as they believed the partitions could be seen as fixtures and fittings which had been annexed to, and become part of, the premises.
The key question of the case, and the main basis for the Court’s findings, was whether the partitions installed were tenant’s fixtures or chattels? The High Court ruled in the landlord’s favour, finding the partitions to be chattels. The partitions were found by an expert witness to be “standard demountable partitions” that were “in no way fixed to the structure”. The High Court concluded that the tenant had not given vacant possession as they had not removed the chattel partitions and accordingly the break clause was ineffective.
It is important to note that Riverside Park v NHS is property law and not a tax case and therefore does not directly correlate to Capital Allowances. However, HMRC guidance manuals state that for all intents and purposes, the distinction between a chattel and a fixture is the same for capital allowances purposes as it is under UK property law ” (HMRC Capital Allowances Manual: CA26025). If within a property law case, the High Court has found demountable partitions to be a chattel, then it is reasonable that a Capital Allowances claim could be made on the same basis.
Based on the High Court findings, it could be argued that demountable partitions installed under a lease agreement with similar vacant possession obligations are chattels. As such, they do not form fixtures or part of the premises structure and are therefore outside the restriction under section 21 List A (1) of the CAA 2001. Capital Allowances are readily available on chattels, as the findings of Yarmouth v France  which stated “plant… includes whatever apparatus is used by a businessman for carrying on his business… all goods and chattels, fixed or movable, live or dead…”
As discussed above, it is important to understand that this case does not set a new tax precedent for claiming demountable partitions. However, the Capital Allowances legislation’s distinction between fixtures and chattels has been influenced by property law in its formation, as explained in HMRC’s own Capital Allowances manuals.
Moreover, the basis to claim on the Riverside case only applies to tenant’s installing demountable partitions under a leasehold agreement with similar break clauses. The lease documents and the licence to alterations would need to be inspected by a Capital Allowances specialist. Further, the demountable partitions installed would have to be annexed to the premises in such a way that they do not become part of the structure.
HMRC may question the basis of such a claim and therefore an expert understanding of the Capital Allowances framework and evidence supporting the claim would be of paramount importance.
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