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Is an item incidental to the installation of plant or not?

22nd Feb 2010
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By Justin Lyon Taylor

The First-tier Tribunal (Tax Chamber) Special Commissioners have now released the second decision in respect of JD Wetherspoon plc v The Commissioners for HMRC [TC00312]. The original appeal that took place in June 2007 related to the treatment of expenditure eligible for capital allowances within public houses and was adjourned for the parties to consider whether outstanding points could be dealt with by agreement. This did not prove possible and a second hearing took place in June and July 2009 as the First-tier Tribunal (Tax Chamber).

During the first and second hearings, over 160 items were considered as to whether the items claimed qualified for capital allowances. The second hearing considered a significant number of items in detail which categorised items into "unclear" and "clear" items. The unclear items were those where there was disagreement between the parties regarding the application of the first hearing. The clear items were those that the parties were in agreement over how to apply the first decision, although a formal decision was requested as to whether the items qualified.

The main items considered in the second hearing fell into two main areas:

• Section 66 of Capital Allowances Act 1990 (now CAA2001 s25) - Alterations to an existing building incidental to the installation of plant and machinery, and;
• Preliminaries.

Alterations to an existing building incidental to the installation of plant and machinery

Section 66 allows for alterations of existing buildings to qualify for capital allowances where it is incidental to the installation of qualifying plant and machinery. This provision can be traced back to the Income Taxes Act 1945 where allowances for plant and machinery were extended to structural alterations necessary for the installation of plant and machinery. The hearing considered a number of alterations to existing building to determine whether they were incidental to the installation of plant and machinery.


The item of splashbacks which comprised a tiled area immediately adjacent to sinks and lavatory basins led to lengthy debate. HMRC accepted after the first decision that splashback surrounds to sinks and lavatory basins qualify for allowances. However, the parties could not agree over the application of the decision to other areas of splashbacks, including where splashbacks formed part of a larger wipe-clean surface, whether the underlying plaster was also eligible and whether splashbacks to other similar equipment was also eligible.

The Tribunal decided that the eligibility of splashbacks did not just apply to sinks and lavatory basins but also applied to other splash producing equipment. However it was decided that where a splashback formed part of a larger wipe- clean surface, for example an overall tiled wall, then this would not be eligible. This was even though HMRC was prepared to accept that parts of a wall should qualify after the first decision. Finally, as the plastering was required to supply a finish to the wall even if a splashback was not provided, then the plastering would not qualify.


A kitchen floor that was required to be strengthened to accommodate kitchen equipment was held to qualify for allowances as it was required for the installation and use of the equipment. The existing floor would not have been strong enough to support the equipment that was to be installed in the new kitchen. Secondly, the entire cost of an inclining concrete floor in a cold store was held to qualify for allowances as the whole structure was necessary for the run-off of liquid into a drainage channel. HMRC had suggested that only the proportion of the cost forming an incline to a level floor would have been eligible. However, the Tribunal took the view that as there was never any intention to provide a level floor which was then altered to an inclined floor, that the entire expenditure on the floor would be incidental to the installation of machinery or plant.

One item for which the decision did not appear consistent is in respect of PVC flooring installed in a disabled WC. The flooring in this case was considered to be specifically designed to assist wheelchair traction and was considered to be eligible as incidental to the installation of plant and machinery. This was on the basis that the floor sheeting was specifically to enable machinery or plant to be installed in the disabled toilets which would appear to be dependent on the operation of the plant in this instance.

Toilet cubicles

The original Special Commissioners' decision in 2007 also held that timber partitions and doors were incidental to the installation of the toilets and therefore qualified for allowances. The recent publication indicated that this ruling was not limited to timber cubicles and did not deliberately preclude brickwork or blockwork walls that were forming cubicles. It also determined that the back walls that conceal the cisterns of the toilets should attract allowances where incidental to the installation of plant and machinery.


The points considered in respect of lighting related to cutting holes for luminaires and other incidental works, as well as lighting to toilet and kitchen areas. Firstly, it was necessary to consider whether the lighting was plant and machinery and secondly whether the items were therefore incidental to the installation of plant and machinery.

The argument here centred on whether or not the lighting was trade specific. This area has become less relevant since the advent of integral features in 2008 which means that all lighting will now qualify for allowances. However, it is still interesting to note that the Tribunal determined that light fittings do not need to be specially constructed or designed to serve a trade-specific purpose. Therefore an "ordinary" light could be held to qualify for allowances if it served a trade-specific purpose, which in this case was providing an attractive ambience in the toilets. Once it had been decided that in the case in point the lighting was plant and machinery, the other items were considered to be incidental to the installation of plant and machinery.


This point related to items of preliminaries, (i.e. costs such as scaffolding, hoarding, temporary propping and overheads) should be apportioned to items of main contract expenditure to which they related, rather than being apportioned pro-rata to the overall construction works. The Tribunal decided that: "In our judgement a global apportionment which accords with commercial practice will normally be appropriate." 

In arriving at this decision, the Tribunal has come to the view that supports the position that has generally been adopted by tax payers but frequently challenged by HMRC over many years in that a global apportionment of these items is an acceptable approach. If large preliminary costs are specifically related to a particular item, then these costs should only be allocated to the item to which it relates. However, the Tribunal stated in the decision that this would only be required where "reasonable and proportionate".

The decision is significant and has potentially brought some welcome clarification regarding incidental expenditure and the apportionment of preliminaries which has been subject to debate with HMRC over many years. However, some of the decided points may prove difficult to apply to the other pubs to which the hearing relates and also when trying to apply this decision to other cases. However, the decision may not yet be final as JD Wetherspoon has appealed to the High Court against the first decision. This is potentially a shame as the decisions could now be overturned leading to further uncertainty regarding the treatment of these items.

Justin is a consultant at Bourne Business Consulting LLP. He specialises in asset taxation advising clients in the retail, real estate, utility and leisure and hospitality sectors.


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