Urenco Chemplants Upper Tribunal verdict
The UT provides further guidance on the question of plant v premises and has sent the case back to the FTT because of several errors in law.
The UT provides further guidance on the question of plant v premises and has sent the case
In this capital allowances case, concerning the question of plant versus premises, which follows on from the First-tier Tribunal’s (FTT’s) decision in 2019, the Upper Tribunal (UT) considered a number of grounds of appeal brought by The Urenco Group (Urenco). Despite HMRC’s view that these all amounted to factual analysis in relation to which the FTT was entitled to find as it had, the UT confirmed that the FTT had misdirected itself in how the law is to be applied. Urenco came into the appeal knowing any single element of the FTT’s decision being set aside would not guarantee that any additional capital allowances would be available. However, the UT’s judgment does raise the possibility that allowances could be available with respect to substantially more of Urenco’s expenditure. Now it is up to the FTT to consider the issues again and determine what, if any, additional allowances might be available.
The FTT had looked to the two fundamental tests, the function test and the premises test, to establish whether each asset constituted plant. These are familiar tests built up over decades of case law, but the UT felt that the FTT had applied these tests too narrowly. Specifically, the FTT considered whether Urenco’s activities could be carried out without certain safety assets such as radiation shielding in theory, rather than the law being applied purposively to the facts in practice. Since the regulatory climate surrounding the nuclear industry means that safety is so integral to operations in the sector, the UT opined that such an artificial distinction was inappropriate. This suggests that substantially more of the assets in question could conceivably be considered plant at common law, although the UT steered away from providing determinations on specific assets.
Next, the UT considered whether expenditure should be regarded as ‘on the provision’ of plant or machinery where the assets were required to make the plant or machinery usable, regardless of whether the assets by themselves would be plant or premises. In most cases the UT found that the FTT’s decisions on this issue were decisions of fact rather than law and therefore outside the scope of the appeal. However, they did find that expenditure on the walls and slab of the Vaporisation Facility was ‘on the provision of plant’ even where they were performing a ‘premises function’, contrary to the FTT.
The third ground dealt with the question of when assets fall within the definition of ‘building’ at s.21 Capital Allowances Act 2001 (CAA2001) and are therefore excluded from qualifying. The FTT considered the common meaning of ‘building’ and whether the assets in question visually resembled buildings, concluding that all of the disputed expenditure did fall into this category. The UT felt the FTT’s approach to this question was unduly narrow and greater weight should have been placed on the main function of the asset rather than its appearance.
The final grounds related to whether any items in List C at s.23 CAA2001 provided an exception where the assets were deemed to be buildings under s.21. Here the UT agreed with the FTT, including on the use of the terminology ‘on the provision of’ within List C which the FTT held narrowed the potential scope of items where this construction was not used to expenditure on the items themselves.
As the case has been sent back to the FTT, we await their remade decision following the UT’s direction. The UT has provided clarity on how to apply the common law tests on what is plant with particular focus on how the function and premises tests should be applied.