In Cheshire Cavity Storage 1 Ltd & Anor v HMRC [2022] EWCA Civ 305, the Court of Appeal agreed with the lower courts that underground gas storage cavities were not plant and were not eligible for plant and machinery capital allowances.

The appellants were companies in the EDF Energy PLC group operating gas storage facilities on adjoining sites in Cheshire.

  • They used underground cavities filled with brine to store gas and incurred costs to de-brine the facilities and incurred costs creating further gas cavities by a process of leaching and de-brining. The total costs incurred by the companies were over £40 million.
  • The companies claimed Plant and machinery capital allowances on the costs which HMRC disallowed. The companies Appealed the decision.

The First Tier Tribunal (FTT) agreed with HMRC finding that the cavities were not plant, and even if they were, they were excluded from allowances by s.22 CAA 2001 as:

  • They were not in use for the purposes of an undertaking for the extraction, production, processing or distribution of gas and were not storage equipment, cold rooms, silos or storage tanks or created for the installation of plant and equipment.

The Upper Tribunal (UT) upheld the decision of the FTT; a plant-like function (which the cavities did have) does not necessarily make premises plant, in circumstances where the premises also function as premises.

The Court of Appeal (CofA) also found that the cavities were not plant:

  • The cavities were part of the land in the same way as a worked-out quarry or mine.
  • No man-made structure or equipment, such as artificial lining had been introduced ('planted') into the cavities.
  • For expenditure on land to qualify as expenditure on plant it must be associated with something recognisable as plant such as equipment or apparatus. The only item introduced to the land here was a cushion gas which was not for the purpose of receiving plant.
  • Even if the cavities met the tests for having a plant-like function, and if they did they only just did so, the UT were correct when they said that just because something performs a plant-like function, that does not necessarily make it plant.

Useful guides on this topic

What expenditure qualifies for plant & machinery allowances?
What expenditure qualifies as plant and machinery? What is treated as part of a building? What is excluded?

Plant & machinery: Allowances
What capital allowances are available on plant and machinery? How do you calculate them? What are qualifying activities?

External link

Cheshire Cavity Storage 1 Ltd & Anor v HMRC [2022] EWCA Civ 305

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