Capital allowances due on crisp potato storeby
A fruit and veg grower won its claim for plant and machinery allowances on a warehouse specifically designed to store potatoes destined for crisp production.
In 2015, fruit and veg producer JRO Griffiths Limited spent £319,483 to build a potato storage warehouse. The company claimed plant and machinery allowances on the expenditure in the accounting period ended 31 March 2015, which HMRC subsequently disallowed. The company appealed.
The facts of the first tier tribunal case (FTT TC08203) centred around the technical construction of the warehouse and the function it played in the firm’s specialist business growing and suppling potatoes for the crisp manufacturing industry. The warehouse had had been designed by Dutch company Tolsma to store potatoes in ideal conditions without any deterioration in quality.
The building design incorporated a number of additional technical features to keep the potatoes in optimum condition including:
Composite HFC-free cladding panels sealed at joints and corners to maintain and regulate the internal temperature
Precast concrete walls acting as storage radiators that draw out heat from the potatoes when initially stored and act as a heat buffer when weather is cold.
A 200mm reinforced concrete floor with a power-floated finish to prevent damage to the potato skins
A separate air mixing chamber to internal air with six roof fans and built-in heaters to avoid condensation on the surface of the crop.
The cost of the store was nearly three times the typical £55,000 cost for a general-purpose warehouse of the same size. Where potatoes crop would perish within three months in an ordinary warehouse, the enhancements allowed potatoes to be stored from September to July,
JRO Griffiths claimed that the storage facility was an item of plant under two separate headings of Capital Allowances Act 2001 (CAA 2001) Section 23 List C:
- Item 18 - cold stores; and/or
- Item 28 (a) - the provision of silos provided for temporary storage.
This case is similar to Stephen May v HMRC (TC06928) on which Steven Bone wondered how HMRC could stoop silo. In the May case the taxpayer claimed plant and machinery allowances for a specialised building used for grain storage under the “silo provided for temporary storage” criterion. The FTT decision was strongly in favour of the taxpayer and HMRC did not appeal it.
HMRC lost again in the Griffiths crisp warehouse case. It is not so much a wonder that HMRC this time, but more surprising that the tax department decided to contest the taxpayer’s appeal at all, given the strength of argument arising out of the May case (although not binding) and the very strong arguments that either Item 18 or 28 (a) could apply.
The taxpayer’s counsel, Mr Bradley – who also represented Stephen May – argued that the building constituted not merely storage or setting, but an activity carried out by the store as a whole and individual parts of it could not be separated out.
Bradley, not surprisingly, relied on the Stephen May case. Applying the “functional test”, Bradley asserted that the facility could not perform its function without the structural elements of the potato store, such as the automated air louvres, the mixing chamber and the concrete power floated floors, special walls and roof. In that sense they were intrinsically linked to the moving parts of the building and functioned as a single entity.
HMRC contended that JRO had not demonstrated that the store functioned as plant. HMRC asserted that it was the plant and machinery inside the store that maintained the potatoes at the correct temperature, not the building as a whole, and that the functionality of the walls and roof was no more than protection from the elements.
The FTT found that the potato store was a silo provided for temporary storage within item 28 (a) in List C, CAA 2001. In doing so however, the judges noted that the decision in while the decision in May v HMRC was not binding, such decisions would be expected to be followed by FTT.
As Bradley pointed out, HMRC had not appealed the decision in the May case, noting: “It is not appropriate for HMRC to fail to bring an appeal to the Upper Tribunal on a point of law decided by the first-tier tribunal, then seek to litigate the same point repeatedly at first instance”
In any event however, the FTT would have found the current appeal amounted to a “silo for temporary storage”.
Although not required, the FTT also considered whether the facility would have qualified as a cold store and there too, the tribunal found in favour of the taxpayer, stating: “We do not consider it necessary for a store to be mechanically ventilated in the sense of a conventional refrigerator.”
This case replayed the main arguments covered in the May grain silo case and reached exactly the same conclusions. Buildings are generally not items of plant, but there are some specialist facilities that do function as a single entity of plant in the taxpayer’s business and should be considered as such.
It is surprising that HMRC contested the appeal at all particularly when it had not appealed the May decision. Clearly, the principle of “judicial comity” where the decision of one judge is respected by another out of courtesy, was very important in this instance.
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Aubrey Calderwood is managing director of leading fiscal incentives company, Gateley Capitus. He also previously ran the capital allowances practice of a ‘Big Four’ accountancy firm. He has a professional background in both taxation and property and has acted for some of the UK’s largest entities across a variety of sectors. Aubrey helps...