CA21260 - PMA: Meaning of plant and machinery: All-weather and artificial surfaces

If you get a claim that an all weather surface such as an artificial sports pitch or an all weather gallop qualifies for PMAs you should find out all the facts. In deciding whether to accept or refuse the claim you will need to decide whether the surface is an asset with which the business is carried on or if it is part of the premises or setting in or on which it is carried on.

There are two cases that involve all weather surfaces, Shove v Lingfield Park 1991 Limited TCL3725, TCR15/04, and Anchor International Limited v IRC TCL3751. In the Lingfield Park case the surface was held not to be plant while in the Anchor case it was. In both cases the method of construction was similar, though the top surfaces differed.

In the Lingfield Park case the company put down an all-weather racetrack and claimed that the expenditure qualified for PMAs. In the High Court the judge said that it was difficult to see the function of the track as being other than as part of the premises. An asset did not lose its character as part of the premises because it was separately identifiable and of different construction. The Court of Appeal upheld the High Court’s decision that the track was not plant confirming that the effect of the track was “to enlarge the area of the racecourse space available to Lingfield to function as premises”. The decision also shows that premises are not limited to buildings that offer shelter.

In the Anchor case the company provided sporting facilities and incurred expenditure on the installation of five-a-side football pitches, which consisted of a sand-filled synthetic grass carpet on a stone pitch base. This synthetic football pitch was claimed to be plant. Unlike Lingfield the period under appeal fell after the introduction of what is now sections CAA01/S21 - S23 and the question of whether the expenditure was on a structure was considered. The Special Commissioner who heard the appeal against the refusal of capital allowances decided that the carpet had an identity of its own and was not a structure. The carpet could be regarded as both the setting for the business and the means by which that business was carried on. As it was a means of generating profit, it was to be regarded as plant. The Court of Session found for the company. It was decided that the Special Commissioner was entitled to consider the carpet as a separate entity and that there was evidence to support that conclusion. On the second point the court confirmed the view taken by the Special Commissioner that the carpet was the means by which the company generated profits and not merely the setting. They held that the facts of the case were distinct from those in Shove v Lingfield Park (1991) Ltd.

The contradictory judgements do not provide clarity as to how such surfaces are to be regarded. As Lord Lowry said in Inland Revenue v Scottish & Newcastle Breweries Ltd 55TC252, there are cases that on the facts found are capable of decision either way.

In Anchor, the Court of Sessions considered it of great importance to consider the function, which the asset performs in the business activity. In Benson v The Yard Arm Club Ltd. 53TC67 a ship moored on the Thames and used as a floating restaurant was held to be premises. If it had been put to use carrying passengers on river cruises it would have been regarded as apparatus of the trade. In Anchor the trade was the provision of synthetic football pitches, whereas the trade of Lingfield was the provision of leisure services including both grass and artificial track racing.

One thing that you should remember when you are considering your case is that the fact that an asset is a means of generating profit does not necessarily mean that it is plant. The business premises are a means of generating profit but they are not plant. For example, the classrooms, car parks, playgrounds, playing fields of a school are part of the means of generating profit and are all part of the premises. Just as the all weather track and the grass track in Lingfield Park were part of the premises an artificial pitch and grass playing fields would be part of the premises of the school.

If you have a case where PMAs are claimed on an all-weather surface you may find that the other side says that the Anchor case supports the claim. The Anchor case was decided on its own particular facts as presented to the Special Commissioner and does not determine the matter for any other case, unless the facts are identical. You should apply the premises test set out by Hoffman, J in the Wimpy case CA21140. This is how Hoffman, J set out the premises test. He said that an item used for carrying on the business is not plant if the business use is as the premises (or part of the premises) or place on which the business is conducted - the ‘premises’ test. In Lingfield Park the Court of Appeal held that the surface was not apparatus with which the business was carried on but was part of the setting or premises in which the business was carried on. It failed the premises test and was not plant.

In most cases an artificial pitch or surface will be part of the setting in which the trade or other Sch A business is carried on. In the Wimpy case Hoffman J said “even if an embellishment for the purpose of trade passes the business use test, it still has to pass the premises test and something that becomes ‘part of the premises’ fails that test unless the premises are themselves plant”. In Anchor it was found that the asset was the carpet which was not part of the premises, but rather an adjunct of the business. In Benson, Shaw LJ said “a characteristic of plant appears to be that it is an adjunct to the carrying on of the business and not the essential site or core of the business itself”. Whereas in Lingfield Park the asset was the track and the integral works which formed part of the essential site.

If you cannot reach agreement with the other side so that the case has to be decided by the Commissioners, the facts found by the Commissioners will be all-important. It is also important to establish the whether the asset is simply the surface material or whether it includes the works underneath. Usually the surface and the substructure are inextricably interlinked.

You must challenge any evidence put forward by the other side with which you do not agree because if you do not challenge it the Commissioners will have to accept it and base their decision on it. If the other side try to attribute a function to the surface you should point out to the Commissioners that every trading asset plays some part in the business and the mere attribution to it of a function does not automatically convert it into plant. The question is what it functions as. If it functions simply as premises or setting it is not plant. In that case it fails the premises test (see above).