There have been a run of cases heard before the courts relating to civil and structural works, with debate about what constitutes a structure as opposed to plant. 

In August 2019, the FTT heard The Cheshire Cavity Storage 1 Limited v Anor case.  This concerned a taxpayer who operates gas storage facilities and created underground cavities filled with brine to store gas.  The gas storage facilities were not found to be plant by the FTT.

This was followed quickly in September 2019 when the FTT heard Urenco Chemplants Limited v HMRC.  This concerned a £1bn upgrade to a facility for handling radioactive by-products in various buildings on site.  The majority of the assets were deemed by the FTT to be the setting in which the business was carried on and so did not qualify for plant and machinery allowances.     

In September 2019, the Upper Tier Tribunal heard an appeal against a FTT judgement released in July 2018.  This case – SSE Generation Limited v The Commissioners for HMRC was taken to the Upper Tier Tax Chamber (UT) after the First Tier Tribunal (FTT) found largely in favour of the taxpayer.  The case involved the eligibility of assets installed to move water into and out of a dammed area and diverted to a turbine to create electricity as part of a hydroelectric power generation scheme.  The generator had previously been accepted as qualifying as plant.  However, HMRC had initially rejected the majority of the civil engineering works relating to the hydroelectric works as falling into s22 (1) (a) and (b).  Following an appeal by the taxpayer, the FTT found largely in their favour, and accepted that water conduits to gather water from the reservoir, the headrace carrying water to the turbine and tailrace carrying water away from the turbine were plant in accordance with s23, item 22, List C (alteration of land for the purpose only of installing plant and machinery) rather than being caught by s22.

HMRC challenged the FTT ruling on the basis that s22 (1)(a) and (b) were not mutually exclusive and that the FTT had incorrectly relied on section 23 CAA2001.  At the same time, the taxpayer challenged the FTT’s ruling that a number of structural items were not plant (some assets deemed by the FTT to be aqueducts were in their opinion pipelines qualifying under s23 item 25 CAA2001). 

Whilst disagreeing on the meaning of a number of specific words, the UT generally agreed with the FT’s reliance on the ordinary meaning of English words used in the CAA2001 legislation as well as statutory interpretation.  These words were aqueduct, tunnel, pipeline and installation.  The relevance being that aqueducts and tunnels are excluded from being plant in List B of s22 (unless they are included in List C, in which case List B is ignored).

The UT found that the structure did not fall into the definition of either a tunnel or an aqueduct and so generally did not fall into List B.  They concluded that the everyday meaning of an aqueduct was ‘a bridge like structure which created a transportation route’; a tunnel was ‘a passageway used to facilitate access from one end to the other of persons or other means of transport’ and the English definition of pipeline was joined lengths of pre-formed pipes, thereby meaning conduits did not fall into this definition.

In terms of HMRC’s argument as to s22(1)(a) and (b)not being mutually exclusive whereby expenditure on the provision of plant or machinery does not include expenditure on:

  • The provision of a structure or asset in List B; or
  • Any works involving the alteration of land

The UT tribunal rejected this argument as it would render deem all assets to fall into s22(1) thereby deeming List B to be redundant.

Lovell Consulting Comment

While this case relates to a huge civil engineering project, it is relevant to all taxpayers claiming allowances.  It highlights the importance of careful identification and segregation of all assets and expenditure.  Lovell Consulting can help with this.

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