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camping pod in woods | accountingweb | Are camping pods items of plant and machinery?

When is a building not a building?


In this tax case involving annual investment allowances for camping pods, the tribunal made some interesting decisions in assessing the structures in question.

31st Jan 2024
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In the case of Acorn Venture Ltd the appellant’s principal business was that of a tour operator, providing residential adventure holidays for school children from centres at various locations, predominantly in the UK. They purchased 26 camping pods and sited them at their Royal Oak centre in the Brecon Beacons in South Wales. 

In the appellant’s company tax return for the accounting period ended 30 September 2015, the appellant claimed annual investment allowances (AIAs) of £354,489. HMRC opened an enquiry into the return and, following a period of correspondence spanning almost five years, on 15 August 2022 HMRC issued a final closure notice reducing the AIA claim by £285,997.

In the company’s appeal to the first tier tribunal (FTT), a number of issues were considered resulting in some of the pods (the basic pods) being granted the AIA and others (the teacher pods) being denied the relief.

Plant and machinery or a building?

In assessing whether the pods were items of plant or machinery, and thus possibly qualifying for the AIA claimed, the FTT considered a number of provisions in the Capital Allowances Act (CAA) 2001. In essence though, they were again attempting to determine the age-old problem considered on many occasions by the courts – what is plant and machinery and what is a building?

The following points of legislation were considered relevant.

  1. CAA 2001 Section 21 

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the provision of a building.

(4) This section is subject to section 23.

  1. CAA 2001 Section 22

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the provision of a structure.

(3) In this section (a) “structure” means a fixed structure of any kind.

(4) This section is subject to section 23.

  1. CAA 2001 Section 23

(3) Sections 21 and 22… do not affect the question whether expenditure on any item described in list C, for the purposes of this Act, is expenditure on the provision of plant and machinery.

The issues in dispute

Apart from a number of procedural points, the parties agreed that the main items in dispute were as follows.

  1. Whether the camping pods are “buildings” meaning that, if so determined, CAA 2001 s21 applies and a claim for capital allowances (and by default an AIA) is denied.
  2. If they are buildings, whether or not they are “moveable buildings intended to be moved in the course of a qualifying activity”. Such moveable buildings are considered to be items of plant and machinery by virtue of a specific exclusion at Item 21 in List C of CAA 2001 s23.
  3. Alternatively, whether the camping pods are fixed structures such that the exclusion in respect of structures at CAA 2001 s22 applies to exclude a claim for capital allowances. 

Buildings assessment

The FTT determined that the basic pods were not buildings meaning that s21 did not apply and therefore the pods were items of plant and machinery used in the course of the appellant’s trade. As such, the appellant’s claim for AIA in respect of the basic pods was allowed.

However, the FTT reached a different conclusion in respect of the teacher pods. First of all, they considered them to be “fixed structures” as defined in CAA 2001 s22.

Having come to this conclusion however the FTT, rather inexplicably, then went on to consider if the teacher pods were moveable buildings as envisaged by item 21 in List C of CAA 2001 s23. 

On this point, the FTT determined that the teacher pods were indeed moveable but that the claim to AIA was denied because the appellant had not proven a clear intention to move them in the accounting period for which the AIA was claimed. However, they went on to say that if, in a subsequent accounting period, an intention to move could be evidenced, that writing down allowances (WDAs) could be claimed by pooling the expenditure for the teacher pods in that period.

Fundamental points

In analysing the way in which the FTT considered the legislative points in relation to this case, there are some fundamental points worth making.

Having concluded that the more elaborate teacher pods are s22 “structures”, they then also went on to consider whether they were s21 “buildings”. They concluded that they were buildings but moveable buildings, thus potentially qualifying for capital allowances relief. However, the AIA was denied because the taxpayer could not demonstrate a clear intention to move them in the period that they claimed the AIA.

There are two flaws with this reasoning.

  1. It is impossible for an item to be both a s22 fixed structure and a s21 building because the s22(3)(a) definition of a “structure” means “a fixed structure of any kind, other than a building (as defined by s 21(3))”.
  2. If the item is a “structure” then it is disqualified from plant and machinery allowances (full stop). Section 23 List C item 21 (moveable buildings intended to be moved in the course of the qualifying activity) does not help because that only saves moveable buildings.

So, the FTT having decided it was a “structure”, immediately overturned their decision by also concluding that it was a “building” albeit a moveable one, thereby qualifying for WDAs at a time when an intention to move could be evidenced.

In this regard, the FTT consideration and conclusions relating to s22 and whether the teacher pods were “structures” was not, in our view, helpful to the analysis of the case. Ultimately, it would appear the FTT reached the right decision but perhaps for the wrong reasons.

Replies (3)

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By mydoghasfleas
01st Feb 2024 12:04

Perhaps each judge wrote part of the decision but did not check what the other wrote. In Mark Shaw (as nominated member of TAL CPT Land Development Partnership LLP) v The Commissioners for HM Revenue and Customs [2021] UKUT 0100 (TCC) the taxpayer's intentions were relevant in respect of temporary disuse under the much missed Part 3 of CAA 2001. The UTT felt the taxpayer's intentions to bring the building back into use, although it did not happen were fundamental to the decision. What I found interesting in the case was that HMRC had argued its approach got to the correct amount of CAs over the period of ownership, ignoring the fact income tax is charged by reference to years and self assessment requires certainty as there are restricted circumstance for amending earlier years. Paragraph 46 notes that approach at the FTT, covers it in detail at 68 and UTT demolishes it in 87.

Was the intention with the Teacher pods in this case tested and found lacking or was it simply unsupported and therefore unproven? Regardless of the schizophrenia in the decision, where intention is relevant make sure that intent can be demonstrated. Here it would not have mattered if the pods were not moved that demonstration of intent could have carried it.

Thanks (1)
By richard thomas
01st Feb 2024 15:26

This article criticising the “unhelpful” approach of the First-tier Tribunal and the resulting flawed reasoning unfortunately invites comeback. Declaration of interest: I am a retired judge of the First-tier Tribunal (Tax Chamber) and I know Judge Amanda Brown KC. That would not stop me criticising the decision if it warrants it.

I ignore the title of the article to which no answer is given in the article, as it may not be the contributor’s.

I can’t ignore the first sub-heading or the first paragraph after it. That is because what it describes is exactly not what the case was about.

Paragraph [10] of the decisions makes this clear:

“HMRC accept that the expenditure on the Pods is capital in nature, incurred for the purposes of the Appellant’s qualifying activity and that the Pods are not the setting/premises from which it operates its business. But for sections 21 – 23, HMRC accept the Appellant would be entitled to claim the allowances.”

In other words both HMRC and the appellant were agreed that the items were plant and machinery to which the opposite is setting or premises from which the business is carried on. If it were buildings v plant & machinery section 21 would be a very odd provision (see decision at [50]). The question of course was whether the expenditure on the plant and machinery was qualifying expenditure.

And see paragraph [37].

Under the sub-heading “Buildings Assessment” (whatever that means in this context) the contributor says that the FTT determined that the basic pods were not buildings, but does not mention that they first found that they were not fixed structures.

In relation to the teacher pods, the article correctly says that the FTT held them to be fixed structures and then “rather [sic] inexplicably” went on to consider whether they were movable buildings.

Why “inexplicably”? We learn that from the “Fundamental Points”.

After the second paragraph which is, inexplicably, a repetition of the last paragraph under “Buildings Assessment”, we find that:

1. An item cannot be a s 22 fixed structure and at the same time a section 21 building because section 22(3)(a) defines structure as a “fixed structure of any kind, other than a building (as defined by s 21(3))”

2. If the item is a “structure” then it is disqualified from plant and machinery allowances (full stop).

Taking 2. first, a fixed structure within item 7(a) to (c) of List B is capable of being an asset, expenditure on which is qualifying expenditure on P&M, though that is not relevant in this case.

1. overlooks that section 21(3) is not a definition, but an extension of the normal meaning, and crucially, that it is subject to section 23 (see section 21(4)). Thus for the purposes of sections 21 to 23 “building” does not include a movable building.

So from this the contributor concludes that the FTT “immediately” overturned their decision.

Far from being inexplicable, the FTT’s approach to the case is spelled out and the reasons given. See paragraph [41]:

“What we take from this rather lengthy quotation, and in particular paragraph 105 of the judgment [of Henderson LJ in Urenco] is that there are structures which are fixed which are not buildings, but all buildings will be likely to be fixed structures. Thus, we decided that it was appropriate for us to start with determining whether the pods are fixed structures and within the scope of section 22 CAA. If they are not fixed structures then, by reference to the test directed by Henderson LJ, we must then determine whether the function and substance of the Pods would drive a conclusion that they were buildings and if so whether they meet the terms of item 21 List C in section 23.”

What’s wrong with that approach? And in any case the parties agreement of the issues showed at item 3 that the s 22 test was an alternative. That is, each party is saying I am right on building, but if I am wrong on that I am right on fixed structure: equally a Tribunal may say that I find for X because I agree with them about point 1, but if I am wrong and so overturned on appeal, I find for them (or not) on point 2.

The contributor's approach is that the Tribunal should have decided the building point and not gone on to consider structure, but only in relation to the teacher pods. That is not how judges work for the reasons given above. The FTT was also deciding the basic pods issue.

I think the crux of the matter is probably paragraph [56]. The judge there is to my mind recognising that a finding that something is a fixed structure within the meaning of section 22 involves determining whether it is also a section 21(3) building, and that that question is determined by not just by asking if it is a building but also if it is outside section 21 because it is movable. It could have been said more clearly, but that is a counsel of perfection given that the parties were agreed on the issues and wanted decisions on them.

What the FTT did not do in any sense was “overturn” a decision they had just made. And FTT consideration and conclusions are given solely for the benefits of the parties, do not set precedent, and are not created to help analysis.

Where is the wrong reasoning?

As for the first comment, does mydoghasfleas really think that writing a decision works like that – of course it doesn’t, and it’s a slur on the FTT judiciary to suggest it.

There is only one judge anyway, as the statement of the constitution of the Tribunal at the top of the decision shows, as does the fact that only the single judge signed the decision. What happens in all cases is that, sometimes after discussion immediately post-hearing or later, the judge prepares a draft decision and sends it to the member for comment, which may be done in writing, over the phone or face to face, and there may be several iterations. Ultimately the judge decides what the decision will say, and it is the decision of the Tribunal as a whole, unless the member writes a dissent, which is rare but does happen (I did it once as a member).

As to the final paragraph of the comment, I suggest reading the decision linked to may throw light on the point.

Thanks (3)
By mdoodney
01st Feb 2024 17:52

I'm not sure I agree with some of this article. It was agreed between the parties that the plant tests were met and that all the pods were structures in line with the old truism that 'all buildings are structures but not all structures are buildings'.

HMRC's approach was to class them as buildings, then argue that they were not moveable but, if they were, there was no evidenced intention to move them in the course of the qualifying activity. Their fallback position if they weren't buildings was to argue that they were fixed structures caught by s22 . We broadly argued the reverse on the basis that if we could get a finding that they weren't fixed structures then firstly s22 wouldn't bite and secondly they were less likely to be found to be buildings. That last bit didn't really pan out.

Judge Brown found the basic pods not be fixed structures but that the teacher pods were, mostly due to being 'plumbed in'. She then went on to consider whether both categories of pods were also buildings in line with the binding decision of Urenco. Here, the fact that the teacher pods were more 'buildingy' in facilities also bought them within the definition of a building whilst the basic pods were (just), well, too basic to be buildings (as far as I can work out, Urenco is a gnomic read for me). The teacher pods were moveable buildings- having pictures of them being moved on site by a telehandler helped- but the evidence of intention to move, which must exist in the accounts period of claim, was absent in 2015 but found as fact to be present in 2019.

All that makes sense to me and it was worth the effort as the HMRC view on fixed structures in their guidance at CA22090 is clearly too narrow but these types of assets, being individually relatively low cost, rarely make it as far as the FTT, the smoking shelter in Andrew being a rare exception.

Thanks (1)