J D Wetherspoon Plc v Her Majesty's Revenue & Customs, SPC 00657

JurisdictionUK Non-devolved
JudgeW Theodore O WALLACE
Judgment Date21 December 2007
RespondentHer Majesty's Revenue & Customs
AppellantJ D Wetherspoon Plc
ReferenceSPC 00657
CourtFirst-tier Tribunal (Tax Chamber)
LONDON TRIBUNAL CENTRE

Spc00657





Capital allowances – Plant – Conversion, fitting out and refurbishment of public houses – Wood panelling for ambiance – Whether panelling became part of premises – Alterations incidental to installation of plant – Barclay, Carle 45 TC 221 considered – Wipe-clean tiles in kitchen and toilets – Additional drainage – Attribution of overheads and preliminaries to expenditure on provision of plant and incidental alterations – CAA 1990 ss 24, 66, Sch AA1 – Decision in principle on sample expenditure – Appellant succeeded in part



THE SPECIAL COMMISSIONERS




J D WETHERSPOON PLC Appellant



  • and –



THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS Respondents





Special Commissioner: THEODORE WALLACE

JOHN WALTERS QC



Sitting in public in London on 14, 19 and 20 June 2007


Julian Ghosh QC and James Henderson, instructed by Deloitte and Touche LLP, for the Appellant Company


Rupert Baldry, instructed by the Solicitor for the Revenue and Customs, for the Respondents



© CROWN COPYRIGHT 2007


DECISION


1. This appeal concerns capital allowances under sections 24 and 66 of the Capital Allowances Act 1990 (“CAA”) for expenditure on fitting out and refurbishing public houses. Statutory references appearing below are, unless otherwise indicated, references to CAA.


2. The appeal is against a closure notice dated 14 May 2003 amending the Appellant’s revised corporation tax return for the accounting year to 31 July 1999. The amendment adjusted the expenditure in the year on qualifying allowances in respect of building costs, professional fees and head office costs from £33,740,007 down to £17,562,348. The appeal was originally before the General Commissioners. The Special Commissioners accepted the transfer of jurisdiction on 28 November 2005. This hearing thus concerned work carried out eight or nine years ago.


3. This decision concerns expenditure on converting two public house premises which were selected by the parties as samples: the Prince of Wales, Cardiff, which was converted from a theatre, and the First Post, Cosham, which was converted from two high street shops.


4. A schedule agreed by the parties showed £1,061,935 out of £1,585,598 expenditure in the year on Prince of Wales as being in dispute. There was no such schedule for the First Post but it appears from the documents before us that £84,397 was in dispute.


5. There were three issues before us:


(1) Whether 37 items of expenditure on the Prince of Wales qualified as plant under section 24 or, in the case of 23 of those, under section 66 and whether 5 items of expenditure on the First Post qualified either under section 24 or section 66;


(2) Whether 60 items of expenditure on the Prince of Wales and 21 on the First Post qualified as building alterations incidental to the installation of plant within section 66;


(3) Whether certain site overhead expenditure or preliminaries, including professional fees, such as structural engineers and planning supervisory fees, is in part attributable to expenditure under section 24 or section 66, and if so how it should be allocated.



6. The parties agreed to review the position in relation to other expenditure of the same type on the Appellant’s other pubs in the year in question in the light of this decision.


Statutory provisions


7. The relevant provisions in the Capital Allowances Act 1990, since replaced by the 2001 Act, were as follows:


s.24(1) Subject to the provisions of this Part, where –


(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and

(b) in consequence of his incurring that expenditure, the machinery or plant belonged to him,


allowances and charges shall be made to and on him …”



8. Schedule AA1 provided:


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


(2) For the purposes of this Schedule ‘building’ includes any asset in the building –


(a) which is incorporated into the building, or

(b) which, by reason of being moveable or otherwise, is not so incorporated but is of a kind normally incorporated into buildings;


and in particular includes any asset in or in connection with the building included in any of the items in column 1 or column 2 of the following Table (‘Table 1’).


(3) Sub-paragraph (1) above does not affect the question whether expenditure on the provision of –


(a) any asset falling within column 2 of Table 1,

(b) any cold store,


is for the purposes of this Act expenditure on the provision of machinery or plant.”



Column 1 of Table 1 included walls, floors, ceilings, doors, windows, stairs, mains services and systems of water and electricity, waste disposal systems, sewerage and drainage systems and shafts in which lifts and hoists were installed. Column 2 included the following:


“1. Electrical, cold water, gas and sewerage systems –


(a) provided mainly to meet the particular requirements of the trade, or

(b) provided mainly to serve particular machinery or plant used for the purposes of the trade.


2. Space or water heating systems powered systems of ventilation, air cooling or air purification; and any ceiling or floor comprised in such systems.



4. Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.


5. Lifts, hoists.

8. Refrigeration or cooling equipment.

14. Decorative assets provided for the enjoyment of the public in the hotel, restaurant or similar trades.”



The notes to Table 1 read as follows:


“1. An asset does not fall within column 2 if its principal purpose is to insulate or enclose the interior of the building or provide an interior wall, a floor or a ceiling which (in each case) is intended to remain permanently in place.


2. ‘Electrical systems’ include lighting systems.”


9. Section 66 provided as follows:


“Where a person carrying on a trade incurs capital expenditure on alterations to an existing building incidental to the installation of machinery or plant for the purposes of the trade, the provisions of this Part shall have effect as if that expenditure were expenditure on the provision of that machinery or plant and as if the works representing that expenditure formed part of that machinery or plant.”


10. The evidence was extensive. We visited both the Prince of Wales and the First Post after the first day of the hearing. There were 136 photographs and lengthy schedules of the items claimed and in dispute. There were seven ring-binders with supporting documentation, floor plans and original construction documentation for each of the two premises and another with supporting documentation for professional fees. Four witnesses gave evidence and were cross-examined: Christopher Large, who worked with the Appellant from 2001 in a number of senior roles and is currently a New Development Consultant; Timothy Martin, chairman of the Appellant Peter Phillippo, LLM, MRICS, MCIArb, ICIOB, Cert Adj, a partner at Tudor Rose Partnership LLP, Chartered...

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