Next loses second appeal for capital allowance

A multi-million pound claim for a tax allowance claim by Next has been rejected for the second time by a tax tribunal, HMRC has said.

Next Distribution Limited, part of retailer Next Group, claimed Industrial Buildings Allowance (IBA) on £19m spent on constructing two buildings used for warehousing and other activities.

Under the now-defunct IBA, businesses could write off some of their construction costs if the sites being built were used to subject goods to a process or to store goods on their arrival in the UK.

HMRC refused Next’s claim for the allowance, arguing that unpacking bulk deliveries and repackaging them in smaller packages was beyond the scope of the allowance.

In 2012, Next's appeal against the decision was dismissed by a first-tier tribunal. The upper-tier tribunal has upheld that decision. HMRC said the decision involves £2.8m of tax revenue. The ruling hasn't been yet been published.

Jim Harra, director general, business tax, at HMRC, said: “This case shows that, when any business – large or small – tries to claim capital allowances beyond their intended scope, HMRC will challenge it, including through the courts if necessary.”

Next argued that goods were delivered in bulk to the building and had to be broken down before they could be sold. The breaking down of bulk deliveries, Next argued, constituted “subjecting the goods to a process or number of processes” within section 18 of the CAA.  

HMRC argued that the requirements of section 18 were not met for four reasons, including that there was no subjection of goods to a process and that there was no storage trade.

The first-tier tribunal ruled that unpacking giant containers and repacking in smaller containers did not amount to subjecting goods to a process. And although the goods were stored in the buildings, the goods were not stored in the buildings “on their arrival in the UK from the outside”.