Court of Appeal judgment in Cheshire Cavity Storage case

The CA followed the FTT and UT in rejecting the classification of gas storage cavities as plant and qualifying for writing down allowances.

The CA followed the FTT and UT in rejecting the classification of gas storage cavities.

In the case of Cheshire Cavity Storage 1 Ltd & another v HMRC the Court of Appeal (CA) considered for the third time (following the prior First-tier Tribunal (FTT) and Upper Tribunal (UT) decisions) whether expenditure on the creation of underground cavities for the taxpayers’ trades of storing gas was expenditure on the provision of plant for the purposes of capital allowances. Ultimately, the CA followed the FTT and UT in rejecting the classification of gas storage cavities as plant and qualifying for writing down allowances. The taxpayers’ appeal focused on the question of whether the fact that the cavities had a ‘plant-like function’ was sufficient to enable them to be considered something other than the setting in which the taxpayers’ trades were carried on. In arguing this, they focused on previous cases where structures had been considered plant.

In particular the taxpayers quoted Barclay Curle stating that a dry dock could be considered plant, partly on the basis that it was not "merely the setting in which” the taxpayer’s trade took place and Yard Arm Club that “Premises only become plant if they perform the function of plant”.

However, the CA provided a detailed analysis of the relevant case law and pointed to many cases where either the court commented that the cases could have been decided either way and the decision was based on the relative degree of the plant versus premises function rather than an absolute test (Jarrold v John Good & Sons, Scottish & Newcastle Breweries, Wimpy v Warland, Carr v Sayer, Anduff Car Wash & Lingfield Park).

In addition, they identified that in several other cases structures only qualified because they were part of a larger entirety which included components which clearly qualified (Schofield v R & H Hall, Cooke v Beach Station Caravans, and Barclay Curle itself). However, the taxpayers conceded here that the cavities should be considered separate assets distinct from the pipework etc. which was agreed to qualify – even so it is unlikely that the cavities would be considered necessary for the functioning of the plant or machinery.

They also quoted from Bradley v London Electric plc, that “It is not enough, in my view, to point to particular features of parts of the structure which perform plant-like functions […], and conclude from those features that it is more appropriate to describe the structure as a whole, […], as apparatus for carrying on London Electricity's business than as the premises in which the business is carried on”.  This was contradictory to the taxpayers’ view that a mere plant-like function was sufficient and helped the CA to dismiss the appeal.

If anything, the CA goes further than the UT in suggesting that the cavities might not be viewed as a distinct structure at all, rather remaining simply land, which itself was not associated with any qualifying apparatus or equipment.

The CA agreed with the UT that the question of whether something was plant was a “question of fact and degree” and that it followed the correct test (the longstanding Premises Test set out in Wimpy v Warland) and therefore dismissed the appeal. This outcome is not surprising, particularly given that the result came down to a relatively straightforward application of the well-established Functional and Premises Tests which are invoked in virtually every capital allowances case.

Nevertheless, it does present a useful summary of what is meant at common law by plant, and emphatically emphasising the need for a qualitative assessment as to the fact and degree; an evaluative process using established authorities.