The definition of ‘plant and machinery’ for capital allowances purposes is something of an old chestnut, but recent case law has added a little new spice. Here Jake Iles and Ray Chidell explains all
Many tax practitioners, if asked to name the five legal cases that have had the greatest impact on tax law, might well include Yarmouth v France. That decision, now 130 years old, paradoxically had nothing to do with taxation at all, but it famously stated that:
“There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business – not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business.”
The Capital Allowances Act of 2001, which we rely on today, similarly has no positive definition of plant, and the quotation above has been approved over and over again, in all courts, in discussions of the meaning of plant for capital allowances purposes. It can be seen as the cornerstone definition and – subject only to statutory provisions that restrict or expand its scope – it is thus of pre-eminent importance in determining what does or does not qualify as plant.
One of the many later references to this definition was by the House of Lords in Scottish & Newcastle Breweries in 1982, where Lord Lowry commented: “I think that much difficulty is caused by seeking to place limitative interpretations on the simple word ‘plant’: I do not think that the classic definition propounded in Yarmouth v France suggests that it is a word which is other than of comprehensive meaning.”
If we strip out the double negatives, we can therefore assert that the term ‘plant’ has been interpreted by the courts to have a very broad meaning.
This broad meaning of ‘plant’ is, however, subject to certain statutory restrictions. These are of particular relevance to fixtures in property.
Section 21 of CAA 2001 includes the bald statement that “expenditure on the provision of plant or machinery does not include expenditure on the provision of a building”. So the starting point is that buildings, and assets incorporated therein, do not qualify. Section 22 imposes an equivalent restriction for fixed structures.
Fortunately, however, section 23 (‘expenditure unaffected by sections 21 and 22’) undoes much of the damage by stating that “sections 21 and 22 do not apply” to various specified types of expenditure. The spared items include all of those within “List C” which covers a wide range of assets from fridges to toilets to lifts and much more. (List C does not guarantee that the items in question qualify as plant, but it removes any statutory restrictions; the items can then be considered on case law principles and, given the very wide definition of plant that we have already seen, do normally qualify.)
Last year’s Telfer decision concerned capital allowances for two caravans. Ultimately HMRC won, as there were three different technical issues at stake and they only had to win any one of the three to deny allowances. On the “meaning of plant” issue, however, HMRC did not get it right.
Item 19 of List C ensures that allowances may be given for “caravans provided mainly for holiday lettings”. HMRC argued that as such caravans are within List C, it must logically follow that the cost of caravans generally must initially be disallowed on the basis that they are either buildings or fixed structures. In other words, HMRC did not ask first whether the items were in fact buildings or structures, and then decide whether there was an exemption, but looked at the issue from the other end of the telescope. This approach to the legislation – described by the Tribunal as an “argument from redundancy” – was both surprising and clearly flawed. In the words of the Tribunal ruling, “it seems to us that section 21 or section 22 CAA could only apply to fixed caravans and plainly Mr Telfer’s caravans were not fixed”. On this technical aspect, the taxpayer was home and dry.
So 130 years after the famous case law comment on the meaning of plant, the arguments still rumble on. Statutory restrictions may take precedence over case law principles, but those statutory restrictions must be correctly applied – by both sides!
- Jake Iles and Ray Chidell are directors of Six Forward Capital Allowances and can be contacted on 0800 0787 964 or by email at firstname.lastname@example.org
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