Northern Gas Networks Limited v The Commissioners for HMRC

Under Finance Act 2001, Schedule 22, paragraph 12(4), land remediation relief is unavailable where the land’s contaminated state results, even partly, from acts or omissions of the claimant company or a person with a relevant connection to it. The provision does not require fault, a voluntary choice to act, or responsibility for the original source of contamination.

Expenditure connected with a chattel is not automatically excluded from relief. The statutory question remains whether it has a sufficient real-world connection with contaminated land. Expenditure directed to providing safe and durable trading assets, rather than remediating land, does not meet that requirement.

Northern Gas Networks Ltd acquired a gas distribution business and rights over land containing iron gas pipes. It incurred revenue expenditure in replacing or lining pipes under a statutory improvement programme and claimed land remediation relief under Schedule 22 to the Finance Act 2001.

The First-tier Tribunal dismissed the claim. It held that the expenditure was not qualifying land remediation expenditure and that the statutory exclusion for contamination caused by the company or a connected person also applied. The company appealed the latter conclusions. HMRC sought, by response, to challenge the First-tier Tribunal’s finding that the land was in a contaminated state.

The central issues were whether paragraph 12(4) barred relief and, if necessary, whether expenditure on work to the pipes had the required connection with land.

1. Appeal dismissed. Proceeding on the company’s own formulation that the land was contaminated because gas was transported through corrodible iron pipes, paragraph 12(4) of Schedule 22 to the Finance Act 2001 conclusively barred relief. The contaminated state resulted at least partly from gas being pumped through the pipes by the company after acquisition and by its then connected parent before acquisition.

2. Paragraph 12(4) is broadly expressed. It asks whether the contaminated state resulted wholly or partly from the acts or omissions of the claimant or a connected person at any time. It does not ask why those acts occurred. Accordingly, it was immaterial that continued gas distribution was commercially and regulatorily necessary, that neither company had laid the iron pipes, and that pumping gas did not itself cause corrosion.

3. The exclusion was consistent with the statutory policy. A company may obtain enhanced relief for imperfect remediation where it did not cause the contamination. A company whose activity partly caused the harm or risk of harm receives no enhanced relief, although its expenditure may remain deductible in the ordinary way.

4. Although unnecessary to the disposition, the Tribunal held that the chattel status of the pipes did not itself prevent expenditure being expenditure “on” or “in relation to” land. The required inquiry is whether there is a sufficient real-world connection between the expenditure and land. The object and effect of this expenditure was to provide safe, durable pipes for the gas-transportation trade. It was therefore expenditure on trading assets, not on contaminated land.

5. The Tribunal also confirmed that paragraph 7 does not exhaust paragraph 2(5). That condition may be met directly, or through either of the deeming routes in paragraphs 7(2) and 7(3). Paragraph 12(1)(b) requires contamination at acquisition, but paragraph 12(4) can also take account of relevant acts after acquisition.

• Upper Tribunal (Tax and Chancery Chamber): dismissed Northern Gas Networks Ltd’s appeal and upheld the First-tier Tribunal’s dismissal of its claim for land remediation relief.
• First-tier Tribunal (Tax Chamber): by a decision dated 2 March 2020, dismissed the company’s appeal against HMRC’s refusal of land remediation relief.