Maco Door and Window Hardware (UK) Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Carnwath,Lady Justice Hallett,Lord Justice Lawrence Collins |
| Judgment Date | 19 June 2007 |
| Neutral Citation | [2007] EWCA Civ 545 |
| Docket Number | Case No: C3/2006/1948 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 June 2007 |
[2007] EWCA Civ 545
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE PATTEN
CH/2005/APP/0888
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Carnwath
Lady Justice Hallett and
Lord Justice Lawrence Collins
Case No: C3/2006/1948
Giles Goodfellow QC & James Rivett (instructed by Messrs. Gregory Rowcliffe Milners) for the Appellant
Timothy Brennan QC (instructed by HMRC Solicitor's Office) for the Respondent
Hearing date: Monday 30th April, 2007
This is an appeal from a decision of Patten J, reversing the decision of the Special Commissioner (Dr Avery-Jones). The case concerned the correct classification, for the purposes of capital allowances, of expenditure on a building provided for the business of the appellant (“Maco”).
The facts were not in dispute and are set out in the judgment below. The main points can be summarised as follows:
i) The building is at Eurolink Business Centre, Sittingbourne, Kent. It comprises 4,445 square metres of which 855 square metres is a high-bay warehouse, and 1,497 square metres is a distribution building also containing storage for items too large to fit on standard size pallets. The building can hold 5,500 pallets. The high-bay part of the building contains “the most hi tech equipment available” enabling orders to be picked, packed and despatched quickly. Eight employees work on the receiving, breaking down of bulk deliveries, storing, retrieving, packaging and despatching of products.
ii) Maco's business is that of importing products manufactured by its Austrian parent company (“Mayer”), and promoting and selling them in the UK. The products are hardware for the PVC window and door market, such as locks, handles, and other fittings.
iii) Mayer mainly manufactures for the mainland European market for which the products are standard. Products have to be manufactured separately for the UK market, where different window fittings are used. The standard ordering time is six weeks. Mayer does not store any products manufactured for the UK market.
iv) Maco's customers are primarily wholesalers who sell the products in smaller quantities to window and door fabricators, and also a few large fabricators. Customers do not hold large stocks and expect orders to be delivered within 7 to 10 working days. It is accordingly important to the Maco's business that it holds sufficient stock to satisfy orders. In addition, its ten-year guarantee requires the holding of products that are no longer manufactured.
v) In 1998 before the new building was opened, the closing stock corresponded to 5 weeks of sales. In 2000, the first full year with the building, it corresponded to 11.9 weeks of sales.
The relevant legislation is section 18 of the Capital Allowances Act 1990, which provides:
“(1) Subject to the provisions of this section, in this Part “industrial building or structure” means a building or structure in use—
…
(e) for the purposes of a trade which consists in the manufacture of goods or materials or the subjection of goods or materials to any process;
(f) for the purposes of a trade which consists in the storage—
(i) of goods or materials which are to be used in the manufacture of other goods or materials;…
(ii) of goods or materials which are to be subjected, in the course of a trade, to any process; or
(iii) of goods or materials, which, having been manufactured or produced or subjected, in the course of a trade, to any process, have not yet been delivered to any purchaser; or ….
(2) The provisions of subsection (1) above shall apply in relation to a part of a trade or undertaking as they apply in relation to a trade or undertaking except that where part only of a trade or undertaking complies with the conditions set out in subsection (1), a building or structure shall not by virtue of this subsection be an industrial building or structure unless it is in use for the purposes of that part of that trade or undertaking.
…
(4) Notwithstanding anything in subsections (1) to (3) above, but subject to subsections (5) and (7) below, 'industrial building or structure' does not include any building or structure in use as, or as part of, a dwelling-house, retail shop, showroom, hotel or office or for any purpose ancillary to the purposes of a dwelling-house, retail shop, showroom, hotel or office.”
The Special Commissioner held that the expenditure qualified under subsection (1)(f)(i), as applied by subsection (2). Taking the elements in turn, he held:
i) The building was used for storage;
ii) The storage was a part of Maco's trade;
iii) As was common ground, the products stored in the warehouse were goods or materials “to be used in the manufacture of other goods or materials”.
The decision was reversed on appeal by Patten J. He held that, for an operation to be “part of a trade” within the meaning of the section “it must itself be an activity in the nature of a trade”. The storage activity in this case did not qualify, because it was carried out “to support the company's wholesale trading operation and not as a trading or commercial activity in itself” (para 40–41).
Authorities
Section 18 reproduces, with some modifications, provisions first introduced in the Income Tax Act 1945. The most authoritative guidance is to be found in two Scottish cases, heard by the same Court of Session in February 1966, the second of which went to the House of Lords. They are Kilmarnock Equitable Cooperative Society Ltd v IRC 42 TC 675 (“ Kilmarnock”) and Saxone Lilley & Skinner (Holdings) Ltd v IRC 44 TC 122 (“ Saxone”). They were decided under section 271 of Income Tax Act 1952 Act, the material parts of which are in the same terms as section 18.
In Kilmarnock, a co-operative society carried on business as general merchants. A substantial part of its business was the sale of coal in 1cwt bags and in bulk. It also sold coal in 28 lb paper bags through its shops as part of its retail business and to other co-operative societies as a wholesaler. It erected a building at its coal depot for the machinery used to pre-pack the coal in the paper bags.
The Court of Session held that it was an industrial building, under section 271(1)(c) (equivalent to s 18(1)(e)) because the packing involved a “process”, and that it was not excluded by section 271( 3) (s. 18(4)), as being a purpose “ancillary to the purposes… of a retail shop”. Lord Clyde noted an additional argument by the Crown that it was not used “for a trade or part of a trade” within section 271( 2) (s 18(2)). Lord Clyde said:
“The argument was that if the Society's only trade was screening and packing of coal in paper bags then the situation might have been different, but this Society operated a trade of general merchants, and only a small part of their total operations involved paper packaging of screened coal. But the relative proportions of the Society's various activities appear to me to be quite irrelevant. The building in question houses a definitely identifiable part of their industrial operations and a quite separate activity, and that separate activity alone. This is in my view enough to satisfy the requirements of Sub-section (2).” (p 680)
This point was not in terms dealt with by the other members of the court. However, I think it is implicit that they agreed, since the argument if accepted would have been fatal to the taxpayer's case. The Crown did not appeal.
In Saxone the provision under consideration was section 271(d)(iii) (equivalent to s 18(f)(iii)), which covers manufactured goods which have not yet been delivered to any purchaser. The taxpayer (a holding company) had a warehousing subsidiary (Jacksons Ltd). In its warehouse it kept shoes of two types, some manufactured by another subsidiary (Kilmarnock), and some bought in from outside suppliers. It was common ground that the Kilmarnock shoes qualified under the sub-section, whereas the latter did not. The different categories were not separated in the warehouse. The sole issue for the House of Lords was whether the storage of qualifying goods was “a part of the trade” of Jacksons, within section 271(2). The Crown did not pursue a contention that the use was within the retail shop exception. Lord Reid (with the agreement of the whole House) said:
“I reject the argument that there is no sufficient distinction between the ways in which the two kinds of shoes are treated to enable one to say that storing the one kind is one part of the trade and storing the other kind is another part. If a trader stores or sells or otherwise deals with two kinds of goods, A and B, I think that it is the ordinary use of language to say that dealing with A is one part of his trade and dealing with B is another part, and I see nothing in the context here to justify giving any other interpretation to 'a part of a trade' in s 271(2). The question therefore comes to be whether this warehouse is in use for the purposes of that part of the warehouseman's trade which consisted in the storing of Kilmarnock shoes. Again taking the ordinary use of language, it appears to me that it clearly was. Premises can be and often are in use for more than one purpose, and I think that the whole of this warehouse was in use for both parts of the warehouseman's trade, because both kinds of shoes could generally be found stored in every part of it.” (p 139–40)
Closer on the facts to the present case are two first-instance cases, from which the Special Commissioner drew assistance: ...
To continue reading
Request your trial
-
Maco Door and Window Hardware (UK) Ltd v HM Revenue and Customs
...Office) Respondents: Giles Goodfellow QC James Rivett (Instructed by Gregory Rowcliffe Milners) SESSION 2007-08 on appeal from: [2007] EWCA Civ 545 OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE LORD HOFFMANN My Lords, 1 For the reasons given by Patten J and Collins LJ, as well a......