Maco Door and Window Hardware (UK) Ltd v Revenue and Customs

The House of Lords considered the meaning of "a part of a trade" in section 18(2) of the Capital Allowances Act 1990 and whether a warehouse used to store a trader's own goods qualified as an "industrial building or structure" under section 18(1)(f)(i). The majority held that subsection (2) applies only where the "part" has the characteristics of a trade in its own right (a composite trade) and therefore does not convert ordinary activities incidental to a vertically integrated trade into qualifying trades. Because Maco's storage was not a trade independent of its trade in buying and selling the goods, the building did not qualify for industrial building allowances.

Background and parties: Maco Door and Window Hardware (UK) Ltd (the taxpayer) imported and distributed hardware purchased from its Austrian parent and sought writing-down allowances under section 3 of the Capital Allowances Act 1990 for a large modern warehouse used to store its stock. Her Majesty's Revenue and Customs amended Maco's self-assessments to disallow the claims.

Procedural history: The Special Commissioner allowed Maco's appeal. Patten J in the Chancery Division allowed the Revenue's appeal ([2007] STC 721). The Court of Appeal by a 2-1 majority restored Maco's claims ([2007] EWCA Civ 545 / reported [2007] ST 1442). The Revenue appealed to the House of Lords.

Nature of the claim and issues: Maco sought capital allowances (a writing-down allowance) by arguing that the warehouse was an "industrial building or structure" because it was in use for the purposes of a "part of a trade" consisting in storage of goods to be used in manufacture (section 18(1)(f)(i)). The central issue was the construction of "a part of a trade" in section 18(2): whether it embraces any activity carried out in the course of a trade (the respondent's position) or only a constituent activity that itself amounts to a trade (the Revenue's position).

Court's reasoning and decision: The majority (Lords Hoffmann, Walker and Neuberger) preferred a construction that reads section 18(2) as concerned with parts of an enterprise that have the character of a trade in their own right (composite trades). They relied on the language and structure of section 18, the statutory purpose of encouraging certain types of trade, practical considerations about limiting uncertainty, and earlier authority and legislative history (including the Finance Act 1982 and later consolidation) to conclude that ordinary storage of a trader's own goods, where storage is an integrated activity of the same trading enterprise, does not qualify under section 18(2). The minority (Lords Scott and Mance) considered that subsection (2) should be read more expansively so that a separable activity integral to a trader's business (for example storage) could qualify even if it were not a separate trade; they relied on earlier authorities and historical Revenue practice. The majority nonetheless allowed the Revenue's appeal and disallowed Maco's claims for the warehouse.

Appeal allowed. The majority held that, for the purposes of section 18(2) CAA 1990, "a part of a trade" must have the characteristics of a trade in its own right (i.e. a composite trade). Storage of the taxpayer's own goods as an integrated element of a buying-and-selling trade did not amount to a qualifying part-trade under section 18(1)(f)(i); accordingly the building was not an "industrial building or structure" eligible for the allowances.

Special Commissioner allowed Maco's appeal; Patten J in the Chancery Division allowed the Revenue's appeal ([2007] STC 721); Court of Appeal (majority Carnwath and Hallett LJJ, dissent Lawrence Collins LJ) allowed Maco ([2007] EWCA Civ 545; reported [2007] ST 1442); House of Lords allowed the Revenue's appeal ([2008] UKHL 54).