First-tier Tribunal (Tax)

[2010] UKFTT 546 (TC)

TC00799

Appeal number: TC/2010/00897

Income Tax: Capital allowances – Plant and Machinery. Was a gazebo in the grounds of a rural pub plant? Held Yes.

FIRST-TIER TRIBUNAL

TAX

MRS C A ANDREW Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: CHARLES HELLIER (Judge) SONIA GABLE (Member)

Sitting in public in Brighton on 31 August 2010

Len Ruward for Mrs Andrew

Karen Weare for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.     Mrs Andrew runs a country pub in West Sussex. In August 2008 she purchased a wooden gazebo which was placed in the pub’s garden. It was purchased with a view to providing cover for customers who smoked and who, as a result of new legislation could not smoke inside the pub. Mrs Andrew claimed first-year capital allowances on the cost of the gazebo. HMRC concluded that the gazebo was not apparatus with which Mrs Andrews business was carried out but premises in which it was conducted, and as a result that it was not plant on which capital allowances were available. They amended her self assessment for 2008 by disallowing first-year allowances on the gazebo. Mrs Andrews appeals against that decision.

The legislation

2.     Section 11 Capital Allowances Act 2001 provides for capital allowances if a person carrying on a qualifying activity incurs qualifying expenditure. Qualifying expenditure is capital expenditure on the provision of plant and machinery for the purposes of the qualifying activity. But this is subject to the provisions of chapter 3 of the same part. Therein section 21 excludes expenditure on the provision of a building, and section 22 excludes expenditure on the provision of a structure as described in list B of that section, unless in either case the expenditure is saved by being within list C in section 23.

3.     Section 22 (3) defines "structure" to mean “a fixed structure of any kind other than a building", and by virtue of item 7 of list B a structure as so defined will fall within list B unless it falls within the exemptions not relevant to this appeal.

4.     List C in section 23 contains a list of types of expenditure unaffected by sections 21 and 22. Potentially relevant to this appeal are

14. Decorative assets provided for the enjoyment of the public in a hotel restaurant or similar trade

21 Movable buildings intended to be moved in the course of the qualifying activity.

5.     As a result of these provisions the expenditure on the gazebo will be eligible for capital allowances only if:

(1)  the gazebo is plant; and

(2)  either  (a) it is not a building or a fixed structure or, (b) it is a building or a fixed structure but it is a decorative asset or movable building within Items 14 or 21 of list C.

The Gazebo

6.     We heard representations from Mr Ruward made in Mrs Andrew’s presence and saw copies of correspondence between the parties. We saw photographs of the gazebo. We find the following facts in addition to those set out above.

7.     The gazebo is made of wood. It has a regular polygonal plan. Above a wooden floor walls run up to the height of about 3 feet. Above the walls crosshatched wooden lattice work runs up to the wooden roof. The gaps in the lattice work are not filled in and the wind and elements may pass through. One side of the polygon is an open entrance. There is no door. Around the panelled sides of the gazebo is wooden seating. It was placed on the ground in the garden: there was no base and it was not bolted to the ground or held down otherwise than by its own weight. It could be moved (although such an activity might require a couple of strong people) and we accept that Mrs Andrew is presently considering moving it.

8.     The gazebo was placed in the pub garden along with other tables with integral benches (some capable of supporting umbrellas over the tables).

9.     It was bought with the intention of providing cover for those who wished to go outside to smoke, but it was not limited to that use, and could be used as one of the garden bench tables would have been: for customers to sit at when they ate, drank or talked.

The parties' arguments

10.  Miss Weare says that the gazebo is not plant. If it were plant she accepts that it is not "fixed" because it can be moved, but if it were fixed structure she says that it is not a decorative asset because it serves a serious practical purpose and was bought as a smoking shelter. A Canaletto, she says, bought to keep out the wind would not be a decorative asset.

11.  She says that the gazebo is not plant because it is part of the premises within which the pub trade is conducted rather than something with which it is conducted. She relies upon Dixon v  Fitch's Garage Ltd  50 TC 509 (1975)and St John's School (Mountford and Knibb) v Ward 1975 STC 7 (CA) and 1974 STC 69 (High Court).

12.  Mr Ruward says that the gazebo is a movable piece of wood garden furniture purchased as a decorative asset for the enjoyment of customers who may sit there to enjoy the views of the South Downs. It is, he says not that different from any covered bench and is decorated to create the atmosphere that the landlord is trying to sell. It provides an attractive place for customers to sit and consume the pub's products. It is not part of the premises. He relies on IRC v Scottish & Newcastle Breweries Ltd 1982 STC 296 and distinguishes Dixon on the grounds that the gazebo provides seating to which the covering is incidental rather than simply the housing of the trade. It therefore functions in the taxpayer's trade and is plant. It is movable and is therefore not a fixed structure. Even if it were fixed structure he says it would be a decorative asset: the crosshatched panelling is decorative and serves no structural purpose. It is quite different from a corrugated iron shelter.

Discussion

(a) plant

13.  As is customary we start our journey with Lindley J's description of plant in Yarmouth v France: whatever apparatus is used by a businessmen in carrying on his business, not his stock in trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business. Next we notice the way in which Hoffman J in Wimpy v Warland 1988 STC 149  describes this test as embodying two tests: the business use test (is the asset employed in the business) and the premises test (if it is the premises in which the business is conducted it is therefore not plant).

14.  We pause at this point to note that into our mind there is no doubt in this appeal that the business use test is satisfied and that the gazebo was kept in the permanent employment of the business. The question for us is therefore whether or not the gazebo fails the premises test.

15.  An early statement of the premises text is found in Lord Lowry's speech in Scottish & Newcastle: "something which becomes a part of the premises, instead of merely embellishing them is not plant except in the rare case where the premises themselves are plant like the dry dock in Barclay Curle ...".

16.  In Wimpy Hoffmann J (@173) considers how these words of Lord Lowry applied to items not incorporated in the original building but added by subsequent improvement. He said (in a passage approved by Fox and Lloyd LJJ in the Court of Appeal) that the question was not the same as whether the asset had become part of the realty for land law purposes but the question was whether it would be more appropriate to describe the item as having become part of the premises rather than having retained separate identity. This he said was a question of fact to which some relevant considerations would be: whether the asset appeared visually to retain separate identity, the degree of permanence with which the asset is attached, the incompleteness of the structure without it, and the extent to which it was intended to be permanent or whether it was likely to be replaced within a relatively short period.

17.  In Gray v Seymour's Garden Centre 1995 STC 706 at 709 Nourse LJ put the question thus: can the asset reasonably be called apparatus with which the business is carried on in which case it will be plant, or will it be the premises in which it is carried on in which case it will not be plant, it being established that even a large structure may be capable of falling within the former category.

18.  Miss Weare cited Dixon. In that case Brightman J held that the canopy at a petrol station was not plant because it merely provided shelter and was not part of the means by which the operation of supplying petrol was performed. It merely made “the business of supplying petrol more comfortable for motorists and the staff ... it did not help deliver the petrol ... it played no part in what may be termed “the commercial process".”. We note that in Scottish and Newcastle Lord Lowry said (at 306) that the Dixon  case seems to him "to have been capable decision either way"; and in Cole Bros Ltd and Phillips 2 All ER 247 Lord Hailsham (with whom Lord Bridge expressly agreed), in discussing the difference between the place in which a business is conducted and the apparatus with which it is conducted, said:

"if [Dixon] can stand in the light of the decision in [Scottish & Newcastle], which may be doubted, this is another example of the same distinction where the housing is to be distinguished from the plant which it houses."

19.  Miss Weare also relied upon St John's School v Ward in which the Court of Appeal unanimously adopted the judgement of Templeman J in the High Court. Templeman J had held that prefabricated gymnasium and laboratory buildings were premises rather than plant and not eligible to first-year allowances. He said:

"in the present case, neither the laboratory nor the gymnasium has any function to perform other than to house to the persons being educated inside. The gymnasium was also used to attach ropes and apparatus and was strengthened that purpose, but the building did not function. The building was only the structure within which the function of educating the boys was carried on.”

20.  Mr Ruward relied upon Scottish & Newcastle. In that case it was held that the creation of atmosphere was an important part of the trade of a hotelier and as a means to an end in carrying on such trade. Accordingly items used to create atmosphere were capable of being apparatus used by the taxpayer and for the carrying on of his business and thus plant. Lord Wilberforce described the amenities as the setting which a hotelier offers to his customers for them to resort to and enjoy. However it is clear from Lord Lowry's speech that a distinction remains to be drawn between premises and apparatus. Thus (at 303) he provides a list: a beautiful building, attractive views, gardens, shrubberies and waterfalls, ornaments, the equipment used by the staff and the glasses, china, cutlery, table linen, and the tables and chairs used by the customers. He then says that everything in the list from the ornaments onwards is apparatus used purely to create atmosphere and part of the hotelier's plant whether or not affixed to the walls or ceilings. But the earlier part of the list remains the premises in which the trade is carried on. The latter parts of Lord Lowry's speech also made clear that plant does not include premises.

21.  We note that Lord Lowry approved passages in the judgement of the Court of Session which included that of Lord Cameron when he said:

"it is difficult to see that the provision of conditions of comfort or even luxury lies outside the legitimate operation of an hotelkeeper ... to do this may be regarded as providing or enhancing the setting in which the services are provided -- but at the same time the "setting" (as opposed to the structural place within which the business man conducts his business) is something the use of which is itself one of the services which the hotel owner makes available to his customer ..."

and that of Lord Stott who said:

"the chair and table which provides a bodily comfort of the guests ... are alike material by the use of which the hotelier may provide the service which it is part of his function to provide.”

22.  What Lord Lowry does in his speech is to make clear that merely because an asset is part of the setting in which a trade is conducted does not necessarily mean that it is part of the premises. Something which contributes to the setting can, but need not necessarily be, apparatus and therefore plant, but if it is part of the premises it will not be plant. Whether or not something contributes to the setting depends upon whether it is used in the particular trade of the taxpayer for a particular function in that trade.

23.  This was not a case where we heard any evidence of the promulgation of any atmosphere or ambience: the specific reasoning in that respect in Scottish & Newcastle is not relevant. But that case shows the need to determine the nature of the taxpayer's business and thereby to assess the role the asset plays within it.

24.  The taxpayer's business is running a country pub. That business involves not only the provision of food and drink to customers but also the provision of facilities in, and with,  which to consume them and to stay and talk: such facilities may be materials by the use of which the publican provides a service which it is part of his function to provide. If they are not premises they will be plant.

25.  We have no doubt that if the gazebo was simply a polygonal bench surrounding a table then it would be plant: it would be a permanent asset provided for the comfort of customers during their stay in the pub and such provision would be a function of the conduct of the pub trade. It would not matter whether the bench were used or intended to be used by customers to sit, eat, read, talk, wait, or smoke: its provision would be part of the way the publican discharged the function of his trade, and it would not have been premises in which they were conducted.

26.  If on the other hand the gazebo was simply a fixed roof on pillars to which customers could resort to smoke outside the pub building it would seem more likely that it could properly be described as part of the premises within which the customer is given licence to put himself where the giving of such licence was part of the trade. In such a case the gazebo, like the roof of the pub, is housing to which customers are given access rather than some further benefit or comfort whose provision is part of  the publican’s trading function.

27.  The gazebo has been added to the gardens of the pub. The garden is part of the premises of the pub even though it is not itself a building. In such a case the approach suggested by Hoffmann J in Wimpy to determining whether something which has been added to the building appears apposite. We ask whether it is more appropriate to describe the gazebo as part of the pub premises or as having retained a separate identity.

28.  On this basis we conclude that the gazebo is plant: it does not look like part of the garden, rather it looks as if it rests upon it; it is attached simply by its own weight and not in any permanent way; without it the gardens of the pub would still be complete; it is movable and possibly may be moved; it provides some shelter but remains open on all sides to wind and some rain. Overall the gazebo looks to us more like an embellishment of the garden, and, rather than something which simply performs the function of housing the business, it provides facilities for its customers to sit and eat and drink.

29.  This is not saying that, because the gazebo performs another function as well as housing, it is plant – that approach was eschewed by the Court of Appeal in Wimpy, rather it is saying that regarded as a whole it is more appropriate to call it apparatus than to call it premises.

30.  It seems to us that the facts in Dixon were materially different (even if it would be decided the same way today). There the canopy merely made the business of supplying petrol more comfortable for motorists and staff. The business was the supply of petrol, not the provision of facilities in which to enjoy it. The business of the pub is not simply the supply of food and drink, it is also the supply of places at which to sit and eat and consume the food and drink and places where people may sit and talk. The gazebo does not simply house the delivery of food; it provides services which are a function of the business. In the context of the publican’s business it was not premises but apparatus.

31.  In St John's School v Ward laboratory sinks and benches formed part of the laboratory building. It proved impossible to apportion the expenditure to specific items, and the question before the court was thus whether the prefabricated structures as a whole were premises rather than plant. Templeman J said that the buildings had no function other than to house those being educated inside. By contrast the gazebo provides only limited shelter which might only just be described as “housing”, and provides facilities to sit and drink.

(b) Fixed Structure or Building

32.  In our view the gazebo was not a fixed structure: it was a structure but it was not fixed. It could be moved and looking at it gave the impression that it could be moved.

33.  The word “building” connotes something with a degree of substance or permanence which provides shelter and security for those inside it. The gazebo was not a substantial structure, it provided limited shelter and little security. We concluded that it was not a “building”.

(c) Decorative/movable

34.  We set out our conclusion on these issues for completeness although they are not, in the light of our conclusions above relevant to our decision.

35.  We do not regard the gazebo as a decorative asset within item 14 of list C. Whilst it is true that it was provided for the enjoyment of the public in a hotel restaurant or similar trade, we would not describe it as a decorative asset: we agree that its function was to provide seating and shelter: visual amenity was secondary. The phrase “decorative asset” suggests to us something whose prime function is to be decorative. The gazebo’s prime function was not that.

36.  On the other hand it is possible that, if, contrary to our view, the gazebo was a building, it may fall within item 21. It would be a movable building and there was at least a possibility of it being moved. Such movement would have been in the course of the qualifying activity: a decision to move the gazebo from one part of the garden to another taken by Mrs Andrew would have been a movement in the course of running the pub. Was it intended that it should be so moved? The best we can say is that it was intended that it might be so moved. The Appellant did not discharge the burden of showing us that it was intended to be moved.

Conclusion

37.  We conclude that the gazebo is plant, and that it was not a fixed structure or building. As a result it is not necessary for it to fall within list C in order to escape from the restrictions in section 21 or 22 of the Capital Allowances Act. First-year allowances are therefore available.

38.  We allow the appeal.

39.  This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

CHARLES HELLIER

TRIBUNAL JUDGE

RELEASE DATE: 1 November 2010