Cheshire Cavity Storage 1 Limited & EDF Energy (Gas Storage Hole House) Limited v The Commissioners for HMRC
A recent case heard by the Upper Tier Tribunal (UTT) follows a trend of capital allowances claims being taken to Court where the disagreement between taxpayers and HMRC revolves around what is deemed to be plant (and so qualifies for plant and machinery allowances) as opposed to premises (so does not).
Cheshire Cavity Storage 1 Limited and EDF Energy (Cheshire Cavity Storage) had contested a decision reached in a previous hearing of their case by the First Tier tribunal (FTT). The FTT had concluded that expenditure incurred on caverns used for storing gas did not constitute expenditure on plant. The caverns were deemed not to be silos or storage tanks, or storage equipment on the basis they were not equipment; and there was no alteration of land for the purposes of installing plant and machinery. The FTT therefore concluded that they did not qualify for plant and machinery as no plant or machinery had been installed.
This conclusion was at odds with other recent engineering cases heard by the courts – including the SSE Generation case where the court had found largely in favour of the taxpayer and expenditure incurred on assets such as water conduits in the hydroelectricity facility was accepted as being plant.
Cheshire Cavity Storage appealed to the UTT.
The UTT further considered the distinction between plant and premises and agreed with the FTT’s conclusion that the caverns were premises as opposed to plant and therefore did not qualify for capital allowances. The key issue was that the function of the caverns was to hold the gas and so were merely the premises in which the trade was carried out as opposed to equipment being used in the trade.
In reaching their conclusion, they drew on a wealth of court cases heard since 1887 where consideration has been given as to what constitutes plant.
Yarmouth v France 19 QBD 64. Capital allowances are available on plant and machinery used within a business. This is the first case (heard in 1887) that concluded that plant is ‘whatever apparatus is used by a businessman for carrying on his business’.
Wimpey International Limited v Warland. In 1989, the premises test was originally considered in Wimpey International Limited v Warland. It concluded that the premises where a trade is carried on is not plant.
IRC v Barclay, Curle & Co Limited (1969) 45 TC 221. The taxpayer carried out a trade of ship building and constructed a dry dock. It claimed allowances on not only the machinery but also the cost of excavation and concrete. HMRC had contended that the basin forming the dock should be regarded as the setting but the House of Lords ruled that the whole qualified as plant. Later legislation (CAA2001 s21-23) now limits the extent to which buildings or structures can be treated as plant.
Schofield (inspector of Taxes) v R & H Hall Limited  STC 353. Dockside silos were held to be plant. The primary purpose of the silos was not storage but was to hold the grain in position from which it could easily be delivered into tankers. The silo housing was also considered to be plant.
Lovell Consulting View
It is interesting to note that the conclusion reached by the FTT in this case contradicts some decisions reached in other recent cases. It is a useful reminder therefore that specialist capital allowances advice should be sought to ensure that the key principle of determining whether the expenditure incurred is on plant or machinery is satisfied.