Urenco Chemplants Limited & Anor. v The Commissioners for HMRC

The functionality test for plant must be applied to the taxpayer’s business as it is actually and lawfully carried on. A regulatory regime which determines what business may permissibly be undertaken is therefore relevant to whether safety-significant structures function in that business. A tribunal errs if it treats such constraints as irrelevant or confines the inquiry to the active processing operation.

For the building exclusion in section 21 of the Capital Allowances Act 2001, function is particularly important. Physical appearance and the presence of walls and a roof are relevant but should not be the primary determinant. Expenditure incurred merely because plant cannot safely operate without it does not automatically constitute expenditure on the provision of plant. The List C savings were construed narrowly.

Urenco Chemplants Limited and Urenco UK Limited appealed from a First-tier Tribunal decision refusing plant and machinery allowances for approximately £192 million spent on parts of a nuclear tails-management facility at Capenhurst.

The facility deconverted radioactive and toxic uranium hexafluoride. Its disputed structures performed radiation-shielding, containment and seismic-qualification functions. The First-tier Tribunal held that most were not plant; that all relevant structures were buildings under section 21 of the Capital Allowances Act 2001; and that List C did not save the expenditure.

The Upper Tribunal considered whether the functionality test had been correctly applied, whether expenditure was incurred on the provision of plant, whether the facilities were buildings, and whether List C Items 1, 4 or 22 applied.

1. Appeal allowed in part; First-tier Tribunal decision set aside in part and remitted. The First-tier Tribunal’s errors of law might have affected its decision. The appropriate course was remittal to the same First-tier Tribunal rather than remaking the decision.

2. The common-law functionality inquiry asks whether an item is apparatus with which the business is carried on, rather than merely the premises or setting in which it is carried on. It must be undertaken by reference to the business as actually carried on. The nuclear regulatory regime was therefore relevant because it determined the business which Urenco could lawfully conduct. The First-tier Tribunal erred by treating the safety structures as unnecessary in a theoretical world in which regulation did not apply, and by treating regulation as irrelevant to functionality.

3. The First-tier Tribunal also placed undue weight on whether an item participated in the actual processing of tails. An item is not plant merely because the business could not be conducted without it. However, a passive safety function which enables lawful business activities does not, by that fact, make the item less plant-like or more like premises.

4. Expenditure on the provision of plant can include acquisition, delivery, transport, installation and putting plant into working order, but must not be too remote. A broad but for test is incorrect. The Tribunal upheld the First-tier Tribunal’s remoteness findings concerning the stairs and access platforms, and its conclusion concerning kiln access hatches. It held that the First-tier Tribunal erred in treating the premises-like function of the Vaporisation Facility walls and slab as relevant to whether expenditure on them was on the provision of plant.

5. Section 21 of the Capital Allowances Act 2001 requires a purposive assessment of whether a structure is a building. Function and characteristics are both relevant, but appearance, walls and a roof should not be predominant. The First-tier Tribunal erred by giving insufficient weight to the facilities’ actual predominant functions and by relying on potential building-type functions and appearance.

6. List C Item 22 is confined to alteration of land solely for installing plant or machinery. It does not extend to constructing safety structures which also protect people and the environment or house plant. Items 1 and 4 do not save installation expenditure merely because it is expenditure on the provision of machinery or processing equipment.

The First-tier Tribunal was directed to remake the affected eligibility decisions for all separately identified ineligible assets, applying the Upper Tribunal’s reasoning.

• Upper Tribunal (Tax and Chancery Chamber): allowed the appeal in part, set aside specified parts of the First-tier Tribunal decision, and remitted the case to the same First-tier Tribunal.

• First-tier Tribunal: refused plant and machinery allowances for the disputed expenditure. Its citation is not stated in the judgment.