Case details
Summary
For industrial buildings allowances, storage must constitute the taxpayer’s trade, or a significant, separate and identifiable part of that trade. It is insufficient that storage is an essential or necessary incident of a wider importing, wholesaling or selling business. Section 18(2) of the Capital Allowances Act 1990 extends the statutory definition to a qualifying part of a trade, but does not alter the requirement that the relevant activity be in the nature of a trade. The decisive consideration is the nature of the enterprise and the role of the stock within it. A separate building and substantial stockholding do not, without more, satisfy the statutory test.
Factual background
HMRC appealed against the Special Commissioner’s decision allowing Maco’s claim for industrial buildings allowances for a warehouse containing offices and a lecture room. Maco imported specialised window and door hardware from its Austrian parent and stored substantial stocks in the warehouse before selling them to UK distributors and fabricators.
The parties accepted that the goods were qualifying goods under Capital Allowances Act 1990, section 18(1)(f)(i), and that section 18(7) could bring the office and lecture-room areas within the allowance if the warehouse use qualified. The central issue was whether the warehouse was used for a trade, or part of a trade, which consisted in the storage of qualifying goods.
Held
- Appeal allowed. The Special Commissioner had misdirected himself on the meaning of “part of a trade” in section 18(2) of the Capital Allowances Act 1990.
- Section 18(1)(f) requires use for a trade which consists in storage, rather than a trade which merely involves or includes storage. Storage must be the taxpayer’s trade, or one of its trades, conducted as a commercial activity in its own right.
- Section 18(2) extends the statutory definition to a qualifying part of a composite trade. It does not impose a different or wider test. The relevant activity must be a significant, separate and identifiable part of the trade and must itself be an activity in the nature of a trade. It need not be limited to selling goods and may include manufacturing or processing operations.
- The decisions in Saxone Lilley & Skinner (Holdings) Ltd v IRC and Kilmarnock Equitable Co-operative Society Ltd v IRC concerned activities carried on as commercial operations by the relevant businesses. They did not support treating every necessary activity undertaken in the course of a trade as a qualifying part of it. The wider approach indicated in the dictum of Dillon J in Vibroplant Ltd v Holland was not accepted.
- Although Maco’s warehouse was separately located and held stock beyond immediate requirements, its storage operation supported and facilitated the wholesale business. It was not a separate trading or commercial activity in its own right. The use therefore failed section 18(2), and the claim for allowances could not succeed.
The court’s approach to earlier authorities
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Appellate history
- High Court (Chancery Division): appeal from the Special Commissioner’s decision released on 25 October 2005. The appeal was allowed on the statutory construction issue.
Appeal to higher court
Appeal to higher court
Key cases cited
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