Two recent tax cases are worth a closer look, they consider whether certain expenditure is plant and so qualifies for plant and machinery allowances.  

JD Wetherspoon PLC (JWD) incurs considerable expenditure in the fitting out pubs and often in adapting old buildings to create new kitchens and toilets. The company has been engaged in a long running dispute with HMRC in determining what type of expenditure and alternations may qualify for plant and machinery allowances.

Another company, B&E Security Systems Ltd (B & E) created a specialist control room, it too ran into difficulties with HMRC.

In JWD v HMRC the Upper Tax Tribunal considered the following problems: 

  1. Is decorative wood panelling installed in a pub plant or part of the premises?
  2. Was expenditure incurred on making kitchens, cellars and toilets, incidental to the installation of plant and machinery, or alterations to the building?
  3. How should preliminary expenditure be apportioned?

Is decorative panelling plant or structure?

The Tribunal concluded that wood panelling created for JDW's  pub was not exceptional and formed part of the wall and so was part of the structure and not qualifying expenditure. 

Our comment - some points to note:

Panelling affixed to a wall could possibly be plant if it was part of a sculpture or a major contributor to the ambiance of the pub, so for example, if a pub were themed as “Cinderella’s castle” and the walls were covered in fairy tale pink and lilac specially carved gothic style panels, there may be some hope of making a claim that the panels are plant. 

What type of alterations to the building were incidental to the installation of plant and machinery?

JDW constructed walls to accommodate a new kitchen and create a toilet block. Section 66 CAA 1990 (which is now section 25 CAA 2001) provides that expenditure which is incidental to the installation of plant is to be also treated as plant.

  • HMRC argued that this should be interpreted narrowly so that if you had to adjust the building to accommodate plant then only that work would qualify as plant.
  • The Tribunal decided that “incidental to” also included expenditure incurred in making the plant usable, so expenditure to adjust a structure to accommodate plant would qualify, but so too would expenditure which made the plant usable. A splash back to sink would qualify as plant (presumably you would ruin the wall if you did not have one). A specially draining cellar floor would qualify on the basis that if you did not have one the plant could flood out the building. However, a more general wipe clean area of tiling in kitchen would not qualify as plant, and walls constructed to form a new toilet block or kitchen would not qualify as plant because they do not assist the operation of the plant located within them.

How should preliminary expenditure be apportioned? 

Preliminary expenditure or site related overheads, as it can be described on any building project may be substantial. Where preliminary expenditure relates to the installation of plant it is also allowable for capital allowances. In JDW the Tribunal decided that on a big project expenditure can be apportioned on by reference to the total of other expenditure on plant. HMRC had wanted an item by item analysis.

When is a building plant? 

In B & E Security Systems Ltd v HMRC TC00452 [2010] UKFTT 146 TC a company constructed a control room for security surveillance in Northern Ireland. Works included specific reinforcement of walls and it was built to a high specification as approved by the company’s customers and to secure highly specialised equipment. The First Tier Tribunal found that the construction works were all alterations incidental to the installation of plant.

Our comment:

Unless it choses to appeal this decision, HMRC may need to think about updating its manuals. Similar past cases involving the construction of structures, such as Barclay Curle and Co Ltd [1969] 45 TC 221 (dry dock), Cooke v Beach Station Caravans Ltd 49 TC 514 (swimming pool) and Schofield v R & H Hall Ltd 49 TC 538 (grain silo). The control centre in B & E Security was a building, so although it is quite rare, a whole building may qualify as plant. Compare to