The Urenco case is a complex capital allowances matter, raising a wide range of technical issues. These mostly relate to the correct interpretation of CAA 2001, sections 21 to 23 (restrictions for buildings and structures, and relaxations of those restrictions). The Court of Appeal has now ruled, mostly favouring HMRC but with one important exception relating to the concept of the “provision” of plant. Urenco Chemplants Ltd v HMRC  EWCA Civ 1587.
Some of the key comments made in the Court of Appeal included the following:
“In the absence of any material misdirection of law, a decision by the fact-finding tribunal on the appropriate way to describe a disputed structure is an evaluative conclusion which must normally be respected by an appellate court or tribunal”.
“I would find it paradoxical if the walls and floor slab, which so clearly form part of the setting within which the items of equipment in the vaporisation facility operate, were to qualify as plant merely because steel supports for some of those items are fastened to them. To my mind, the natural conclusion to draw is that this feature of the vaporisation facility reflects its role as a specialised setting for the operations carried out within it, in much the same way as the specialised structure of the electrical substation in Bradley.”
“in my judgment, the FTT directed itself almost impeccably on this question, and came to conclusions which it was fully entitled to reach. As to the law, the FTT appreciated that the meaning of an ordinary English word like ‘building’ may vary depending on its context, and here both structural characteristics and function must be considered. Although the FTT did not refer to the Ghai case, it wisely resisted the temptation to seek to define an everyday word which Parliament had deliberately left undefined, or at least only partially defined. It also seems clear to me that … the FTT was in substance adopting an iterative process of the kind recommended by Lord Neuberger MR in Ghai.”
“there must in my view be a strong suspicion, even without recourse to the predecessor legislation, that something has gone wrong with the drafting of section 23(3) and List C, or at least that those provisions should, if at all possible, be construed in a way that does not draw a distinction between items contained in List C depending on whether the expenditure is ‘on’ them or on their ‘provision’.”
“In my judgment, the construction of section 23 and List C as they stand in CAA 2001 does give rise to a real and substantial difficulty, because of the striking differences in the drafting of the Items in List C, and the sheer implausibility of Parliament having wished to draw a distinction between expenditure ‘on’ the items in the first part of the List and expenditure on the ‘provision’ of those items. The absence of any explanation in the explanatory notes, which themselves refer back to the predecessor legislation and appear to indicate an intention to replicate it, subject only to specified minor changes, can only reinforce the nagging sense that something must have gone wrong in the drafting.”
“In order to contain Item 22 within reasonable bounds, therefore, the alteration of land must in my view be for the sole purpose of installing items of plant or machinery which have a separate existence, and which need to be fitted in place within the building. The wording of Item 22 is not apt to include cases where the purposes to be served go beyond the installation of extraneous pieces of equipment, and still less to include cases where the alterations consist in works of construction of a structure or building which, when completed, is intended to function as a single item of plant in its own right.”
In summary, HMRC succeeded on all three aspects of their own appeal, and Urenco succeeded on one aspect but not on another.
All of the issues raised in this case are examined in depth in the Capital Allowances book shown below.
Related content from Claritax Books
Capital Allowances, by Ray Chidell and Jake Iles, offers in-depth coverage of plant and machinery allowances, structures and buildings allowances, and all other UK capital allowances. The book has very detailed and practical guidance on claiming allowances for fixtures in property that is bought or constructed.
Full reference is made throughout to legislation, case law and HMRC guidance.