Plant and machinery allowances are available for assets that are either plant or machinery. In practice, the definition of “machinery” is usually pretty straightforward, but the exact definition of “plant” is much more problematic. In the absence of a positive statutory definition, we need to consider the extensive case law that has pondered the issue.
Apparatus
The earliest (19th century) case to which nearly all others refer back turned on whether or not a horse was plant (Yarmouth v France). Lord Justice Lindley ruled that:
“[Plant] includes whatever apparatus is used by a businessman for carrying on his business … all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business.”
This quotation has been approved over and over again, in all the courts, when discussing the meaning of plant for capital allowances purposes. 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, and in showing that the term has a broad definition.
Broad definition
Nearly a hundred years later, this wide definition of “plant” was emphatically reaffirmed in the Scottish & Newcastle Breweries case. Lord Lowry in the House of Lords warned against interpreting the term in too restrictive a manner:
“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.”
Plant v setting
So the meaning of plant may be very broad, but it is not (of course) without limits. In particular, care is needed to distinguish between the prepared setting or premises into which other assets may be placed (not plant) or apparatus used within such a prepared setting (plant). The botanical meaning of plant is therefore seen to be related in this way.
Applying this principle, allowances have been denied for a school gymnasium (St John’s School), for a boat used as a floating restaurant (Yard Arm Club), for eco-friendly holiday cottages (McMillin) and for car valeting bays (Rogate), to name but a few. In each case, the asset for which allowances were being claimed was functioning merely or mainly as premises rather than as apparatus.
But the divide is not black and white. In Jarrold v Good, the judge specifically commented that “the setting in which a business is carried on, and the apparatus used for carrying on a business, are not always necessarily mutually exclusive”. On that basis, a claim for the cost of moveable partitions was permitted.
Not a flow chart exercise
In the 2010 Andrew case, concerning a gazebo in a pub garden, the Tribunal re-iterated an already established principle: the mere fact that an item functions as apparatus alongside its function as premises is not enough to push it definitively over the line to qualify as plant. But the subject of that case – a gazebo in a pub garden – was held to be plant because “regarded as a whole it [was] more appropriate to call it apparatus than to call it premises”.
So deciding whether something is plant or not cannot be a mere flowchart exercise that leads to a yes or no answer. Rather, it is always necessary to make an intelligent appraisal of the facts and to apply the case law principles carefully.
Statutory restrictions
Those case law considerations are nowadays subject to the statutory provisions at sections 21 to 23 of CAA 2001, and we will look at these in a later article. In summary, though, a taxpayer claiming allowances for a substantial fixed asset will need to negotiate the statutory restrictions and must also show that the item is plant in accordance with case law principles.
We have witnessed that double-pronged approach in numerous recent cases, with mixed outcomes for HMRC. In Urenco, for example, the First-tier Tribunal (FTT) repeatedly concluded that the assets in question were “naturally described as a building” and that they were therefore correctly described as such, rather than as plant. Similarly, in Cheshire Cavity Storage, the FTT held that the vast gas cavities did not constitute “storage equipment” and, once more, allowances were denied. By contrast, a grain silo was held by the FTT to be plant in May, because it was performing a plant-like role in drying the grain and keeping it dry. And on rather more complex facts, and involving much higher levels of expenditure, the taxpayer in SSE Generation was broadly successful both at the FTT and at the Upper Tribunal.
In short, case law principles established 133 years ago remain wholly relevant today, but those principles are continually refined by new hearings and by the interaction with the statutory restrictions. The definition of plant is a grey area, involving large amounts of expenditure, where HMRC will often take an unduly restrictive line and where a carefully constructed argument can often prevail.
