Court of Appeal decision in Urenco Chemplants Limited & Anor v HMRC

The Court of Appeal reversed the UT’s decision in this case when considering the age-old capital allowances question of plant v premises.

Capital allowances case on plant v premises.

The Court of Appeal (CoA) has now considered this long-running case in order to determine which elements of the nuclear decommissioning facility qualify for plant and machinery allowances (PMAs). The verdict was largely a win for HMRC, with much of the First-tier Tribunal (FTT)’s decision, which had been overturned at the Upper Tribunal (UT), being reinstated. However, there was a small but important win for the taxpayer on where expenditure is incurred ‘on the provision of’ Items 1-21 of List C at s.23 of the Capital Allowances Act 2001 (CAA2001). This could potentially widen the scope of expenditure in respect of which a claim for PMAs can be made and may potentially be the most wide-reaching aspect of the decision.

Last year, the UT considered this case, relating to the construction of a facility for decommissioning byproducts of nuclear power generation, and concluded that the FTT’s decision, which had largely judged the disputed expenditure to be on the premises rather than plant, had involved several errors of law, remitting the case back to the FTT for reconsideration.

The CoA disagreed with the UT, noting that reading the FTT’s decision in context suggests it did precisely what the UT criticised it for not doing. As such, the CoA set aside the UT’s decision in respect of these issues and reinstated the FTT’s original reasoning. The effect of this is that much of the expenditure incurred by Urenco on the construction of their facility will not qualify for PMA’s, falling outside the definition of plant at common law and within the definition of a building at s21 CAA2001 (this, despite how specialist the design and construction of the premises were).

In all likelihood the FTT’s reconsideration of the case would have broadly led to the same result anyway, and the CoA highlights this as a reason why the UT was wrong to set aside the FTT’s decision, stating ”I find it helpful to try to imagine how the FTT, on a remitter, might reasonably be expected to approach and perform its task in a significantly different way, with the benefit of the guidance and criticisms contained in the UT Decision […] I confess that I find it hard to imagine the FTT coming to a different conclusion.”

Urenco had two grounds of cross-appeal. One proposed a wider reading of Item 22 of List C (s23 CAA2001), “The alteration of land for the purpose only of installing plant or machinery”, to encompass the construction of buildings necessary to house the plant and machinery located within. The CoA dismissed this on the basis that it would undermine the restriction in s21 on claiming PMAs on the provision of buildings.

Urenco’s second ground of cross-appeal concerned the distinction in List C between items using the terminology ‘expenditure on’ and items using the broader ‘expenditure on the provision of’. Both the FTT and the UT agreed that this distinction made a difference, narrowing what expenditure could qualify under the former wording. The CoA looked at the history of the legislation (from the 1990 Act to the 2001 Act) and determined that this distinction was not intended and was rather an oversight by the draughtsman combining two lists into one (as a result of the Tax Law Rewrite Project), and therefore expenditure on the provision of any item within List C could qualify.

Overall, this case adds further clarity to the plant vs premises debate, and clarifies how the words ‘on the provision of’ are to be applied to section 23, List C.