When is a building not a building?by
In this tax case involving annual investment allowances for camping pods, the tribunal made some interesting decisions in assessing the structures in question.
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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.
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.
- 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))”.
- 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.
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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...