Commissioners of Inland Revenue v Anchor International Ltd [Court ofSession Inner House Extra Division]
| Jurisdiction | England & Wales |
| Judgment Date | 30 January 2003 |
| Date | 30 January 2003 |
| Court | Special Commissioners (UK) |
special commissioners decision
Dr John F Avery Jones.
Julian Ghosh (instructed by KPMG) for the appellant.
Jane Paterson (instructed by the Solicitor of Inland Revenue) for the respondents.
1. This is an appeal by Anchor International Ltd against assessments to corporation tax for the accounting periods ended 30 April 1995-1998. The appellant was represented by Mr Julian Ghosh, and the Commissioners of Inland Revenue by Miss Jane Paterson.
2. The issue is whether capital expenditure incurred by the appellant in respect of the construction of five-a-side football pitches on the excavation, infilling, draining, terram and synthetic grass is expenditure on the provision of plant and machinery.
3. I heard evidence from Mr William Pomfret, contracts manager of G Thornton (Contractors) Ltd who has over 15 years' experience of the synthetic sports carpet industry, and Mr William Buchanan, financial controller and then financial director of the appellant until 1999. I also had the benefit of seeing the appellant's pitches at Sighthill in Edinburgh.
4. There was an agreed statement of facts as follows:
(1) The appellant company is Anchor International Ltd ("the appellant"). The appellant was incorporated in Scotland in February 1987 with company registration number SC103260. The company commenced trading on 15 June 1988.
(2) The appellant was established with widely drawn objectives which are described in the memorandum of association. Since the commencement of trading the actual trading activity carried on by the appellant assessable to corporation tax under Sch. D, Case I has comprised the provision of leisure facilities at various sites throughout the UK. As at 30 April 1998 the appellant provided both outdoor and indoor leisure facilities at five sites in Scotland and four sites in England.
(3) As at 30 April 1998 the outdoor facilities comprised between eight and 12 pitches specifically designed for five-a-side football matches. There was also a clubhouse building on each site providing all or a combination of indoor facilities, including shower and changing rooms, snooker and pool tables, coin-operated gaming machines, function rooms and bars. These facilities are available to persons using the pitches.
(4) In view of the popularity of the football facilities the appellant operates an advance booking system for the five-a-side pitches. Block bookings are made by clubs which form together and play each other on pre-arranged dates as part of regular five-a-side football leagues. Clubs enter into formal block booking agreements for a series of at least ten bookings. Under these agreements the appellant reserves pitches for the relevant dates and times and the club undertakes to pay the appropriate charges for the use of the pitches on each occasion during the booking period.
(5) In the four accounting periods up to 30 April 1998 the appellant's turnover may be analysed as follows:
Accounting period
ended 30 April
1995
1996
1997
1998
Pitch and ball hire
2,987,707
70.4%
3,203,373
70.7%
3,639,158
71.3%
3,939,040
70.6%
Booking cards
18,642
0.4%
19,810
0.4%
19,852
0.4%
23,030
0.4%
Locker income
56,721
1.3%
46,105
1.0%
46,933
0.9%
46,166
0.9%
Bar and food
970,290
22.8%
1,037,115
22.9%
1,190,272
23.3%
1,256,133
22.5%
Amusement machine
66,216
1.6%
69,444
1.5%
86,085
1.7%
102,420
1.8%
Other income
147,360
3.5%
157,788
3.5%
124,037
2.4%
211,505
3.8%
£4,246,936
£4,533,635
£5,106,337
£5,578,294
0.9%
(6) At all the sites operated by the appellant the game of five-a-side football involves the use of rebound boards on all four sides. Hard nets are mounted along the top of these boards behind each set of goals. Wire mesh fencing is mounted along the top of these boards at both ends of the outside perimeter of the pitches. Soft nets are hung above the rebound boards at the sides between individual pitches and are also hung above the hard nets and the wire mesh fencing. In addition each pitch has separately dedicated floodlights.
(7) In order that the pitches might be used for 364 days each year the appellant provides a playing surface of a sand-filled synthetic grass "carpet". This synthetic grass carpet is laid on top of a semi-permeable terram which overlays a loose stone drainage system. This playing surface provides good bounce and also both spring and slide for the players. The synthetic grass carpet is laid in strips which can be lifted by a specialist contractor and replaced when they become worn out. (The Inland Revenue accepts that the word "carpet" is used throughout this statement since that term is used in brochures and other documents issued by the manufacturer and by the contractor. The Inland Revenue accepts that the word "carpet" is used merely as a convenient shorthand, but the Inland Revenue does not accept that the synthetic grass "carpet" has all the qualities of what might be laid on an indoor floor. The same term has been adopted for convenience in this decision.)
(8) The standard dimensions of each five-a-side football pitch are approximately 32.1m x 23.1m.
(9) It is agreed that the cost of construction of the clubhouse building is not eligible for capital allowances.
(10) It is also agreed that the cost of the land underlying the five-a-side pitches is not eligible for capital allowances.
(11) The capital expenditure on the construction of the actual five-a-side pitches has been analysed into separately identified elements as shown in appendix A. This analysis relates to the expenditure at Sighthill, Edinburgh. The Sighthill premises were largely constructed during the accounting periods ended 30 April 1996 and 1997. It is believed that the Sighthill premises are broadly typical of the locations constructed by the appellant in the four accounting periods to 30 April 1998. It is further agreed that the decision of the special commissioners in relation to the capital expenditure at Sighthill, as referred to in para. 4(12) will be applied to any identical capital expenditure incurred by the appellant at other locations during the four accounting periods through to 30 April 1998. The decision of the special commissioners, subject to any appeal, will also be applicable to any identical capital expenditure incurred by the appellant in subsequent accounting periods, provided that there is no material change in the law as regards such capital expenditure.
(12) The first category of expenditure relates to the football pitches. The Inspector of Taxes agreed claims for capital allowances in respect of similar expenditure for periods up to 30 April 1994. A subsequent Inspector of Taxes formed a different view on the application of the law for later periods. It is the view of the Inland Revenue that the original decision to grant allowances was incorrect but that it is precluded from re-opening the assessments for those periods by virtue of the decision in Scorer v Olin Energy Systems Ltd TAXTAX[1985] BTC 181; 58 TC 592.
(13) It is agreed that the second category of expenditure comprising the goal posts, rebound boards and floodlights is all expenditure on the provision of plant which is eligible for capital allowances.
(14) In order for the design of the five-a-side pitches to be finalised it is necessary to undertake some preliminary investigative research into the site. This will usually involve two separate studies. A ground investigation report will be required to establish the soil conditions, nature and depth of topsoil, water-table level, the stability of the ground and make up of the formation the pitch base will be laid upon. A topographical survey is required to establish levels over the site to determine the extent of any cut and fill exercise required. In addition this may determine the design of the pitch drainage to utilise any natural fall in the site levels.
(15) The ground investigation report will highlight the expected extent of excavation but it is likely that a vegetation and topsoil strip reducing levels by approx 200-300mm will be required to expose the formation. Depending on how uneven the site is a cut and fill exercise may be required to bring the pitch area to a maximum gradient of 1:100. The eventual gradient of the pitch area will determine the drainage design and at this point a series of lateral stone filled drainage trenches will be cut into the formation. Once the formation has been trimmed and proof rolled the pitch build up process can begin.
(16) First, the prepared and rolled formation will have a layer of terram geotextile laid upon it. This is to prevent the stone pitch base from being contaminated by the formation and keep the stone base clean whilst allowing it to drain freely. A layer of stone will be laid upon the terram. The thickness of the stone layer will be dictated by the ground conditions and the stability of the formation. Between 200mm and 300mm of stone is usual for most conditions. The stone to be used must satisfy a very tight specification. MOT Type 1 with a limited amount of fines and which is not frost susceptible must be used. Certificates must be provided to ensure that all loads supplied comply with the specification. The stone base is laid in layers of no more than 100mm, rolled and compacted to give a firm but porous base. The final layer is laid by a laser controlled paving machine to ensure that the base is within the...
To continue reading
Request your trial
-
Commissioners of Inland Revenue v Anchor International Ltd [Court ofSession Inner House Extra Division]
...by Dundas & Wilson) for the taxpayer. The following cases were referred to in the judgment: Anchor International Ltd v IR CommrsSCD (2003) Sp C 354 Attwood v Anduff Car Wash LtdTAXTAXTAX [1997] BTC 454 (CA); 69 TC 575; [1996] BTC 44 Benson v Yard Arm Club LtdTAX (1979) 53 TC 67 Black v Shaw......