Second U-Turn in Urenco Chemplants Case – Court of Appeal Decision

The Court of Appeal (CA) has handed down its decision in the case of Urenco Chemplants Ltd and others v HMRC [2022] EWCA Civ 1587 on 01 December 2022. The case relates to the availability of capital allowances on the construction of a tails management facility - a nuclear site dealing with depleted uranium – substantially completed in summer 2018.

Following previous decisions at First Tier Tribunal (FTT) and Upper Tribunal (UT), the CA was asked to consider HMRC’s appeal on three grounds and Urenco’s cross-appeal on two grounds. The UT had previously set aside the decision of the FTT, asking the FTT to remake their decision with the direction the UT gave in their decision.

The main issue at the root of the initial decision by the FTT hinged on an age-old capital allowances question about the distinction between ‘plant’ and ‘premises’ – the former qualifying for tax relief under the capital allowances legislation and the latter (until the introduction of Structures & Buildings Allowances in 2018 - or the prior Industrial Buildings Allowances - abolished in 2011) did not generally qualify for tax relief.

The CA has overturned the UT’s decision from early 2022, reinstating the initial decision by the FTT that much of the disputed expenditure was expenditure on premises rather plant, within the definition of a building at s.21 Capital Allowances Act 2001 (CAA2001) – save for the Kiln Facility and Condenser Facility that were determined to have functions within their trade, a key differentiator from precedent case law between ‘plant’ and ‘premises’.

One ground of cross-appeal by Urenco did win, which related to the distinction between the wording “expenditure on” and “expenditure on the provision of” items within List C, s.23 CAA2001. The CA found that “expenditure on the provision of” any item within List C could qualify, and was not narrowed by the difference in wording, but merely an unintended consequence of the combination of lists during the Tax Law Rewrite Project. Although untested, this could potentially widen the net of available expenditure against Items 1-21 of List C (s.23 CAA2001).

Urenco’s second ground of cross-appeal, relating to a wider reading of Item 22, List C (s.23 CAA2001) – “The alteration of land for the purpose only of installing plant or machinery”, lost, with the CA determining that a wider reading including buildings necessary to house plant and machinery would undermine the wording at s.21 CAA2001, restricting expenditure on the provision of buildings as qualifying for plant and machinery allowances.

This case does give some more clarity to the distinction between ‘plant’ and ‘premises’ and will more than likely be used as a yard stick in new cases brought before the courts. However, this is not yet a definitive line drawn - given the amount of money at stake in this specific case for Urenco and the perceived widening of the wording at Items 1-21 List C (s.23 CAA2001) for HMRC, it would not be surprising to see this case progress to the Supreme Court, by either or potentially both parties.

This case is one of several recent decisions where HMRC has sought to challenge and restrict the capital allowances available to taxpayers, proving that it is essential to have robust claims underpinned with relevant expertise in understanding the boundaries of what is eligible or not to optimise the available tax savings achieved. With 130% allowances from Super-deductions we fully expect HMRC to remain very focussed on what does, or does not, qualify for capital allowances.

Should you or your clients have any questions relating to this case, the availability of allowances on your property expenditure or any other assitance with your property tax matters, please do contact the team on 0345 230 6450 or hello@e3consulting.co.uk. We look forward to speaking with you soon.