Acorn Venture Ltd v The Commissioners for HMRC

The Appellant’s starting position was that, in substance, the issues in this appeal could not and should not be distinguished from those before the Tribunal in Andrew v HMRC [2010] UKFTT 546 (TC) (Andrew).

That case concerned a wooden gazebo which had been placed in a pub garden for the purposes of providing a sheltered area for smokers no longer able to smoke inside the pub. HMRC had denied first-year capital allowances on the gazebo firstly on the basis that it was premises from which the pub trade was carried on (and thereby outside section 11 CAA) and, in the alternative, that it was a building or fixed structure.

The Andrews judgment describes the gazebo as:

The Tribunal determined that the gazebo was not the premises/setting from which the qualifying trade was operated and was therefore plant. It also concluded that it was not a building or fixed structure on the basis that it was moveable and not fixed to the ground and, in the context of “building”, did not have substance or permanence nor did it provide the level of shelter and security to be considered a building. It was not therefore necessary to consider whether the gazebo met the terms of Item 21 List C but the Tribunal indicated that whilst it was plainly moveable the taxpayer in that case had not adduced sufficient evidence to show that it was intended to me moved rather than it might, in due course, be moved.

The Appellant contends that the Pods are not buildings. They rely on the dimensions of the Pods, the fact that they were delivered and moved to site as complete units and the terms of the BBNPA planning consents which, taken together, support the submission.

In this regard we were referred to HMRC’s guidance (CA90250) which refers to the substance of a structure and acknowledges that structures “too small or insubstantial to be a building, such as a tool shed” fall outside the definition for CAA purposes of a building.

The Appellant also relied on the fact that the Pods did not provide living accommodation as they lacked the necessary facilities to live domestic life independently. Even the Teacher Pods lacked the facilities for cooking.

If we find that the Pods (or any of them) are buildings then the Appellant contends that they must be treated as movable buildings intended to be moved in the course of the qualifying activity of residential adventure holidays under Item 21 List C. This is on the grounds that the planning consent is not for permanent structures as identified in Policy 46. The Pods are considered by the BBNPA and the Appellant to be interchangeable with tents.

The Appellant challenges HMRC’s contention that they should be required to demonstrate, by reference to documentary evidence, that there was an intention to move the Pods in the accounting period in which the claim to AIA’s was made. The Appellant relies on Mr Gardiner’s oral testimony of the intention, the nature of the Pods and such documentary evidence as there is to substantiate that the Pods could have been moved at any time and had been purchased with the intention that they would be moved if and when need arose.

The Appellant resisted the view expressed by HMRC that in order for there to be a relevant intention the requirements and associated costs of moving must be minimal. It was contended that the majority of business decisions require that costs be incurred and/or that requirements need to be met.

Finally, in this regard, it was submitted that as the Appellant’s qualifying activity required the provision of accommodation for both children and adults by reference to the needs and requirements of the various sites and to meet demand the movement of pod within or between sites was movement in the course of and not simply for the purpose of the qualifying activity.

By reference to the analysis of the Court of Session in Inland Revenue Commissioners v Anchor International Ltd [2004] ScotCS 281 (Anchor) the Appellant contended that the pods, whilst structures, were not fixed structures as they rested by their own weight on the ground and was fully moveable albeit using the right equipment.

HMRC’s primary contention is that each Pod is a building for the purposes of section 21 CAA.

In response to the Appellant’s reliance on Andrew HMRC contend that there are significant differences between the gazebo and the pods in substance and attachment and because the pods are an enclosed space providing shelter and security. As such they contend that the judgment is of little relevance.

HMRC rely on the recent judgment in Urenco Chemplants Ltd v HMRC [2022] EWCA Civ 1587 to support their conclusion that the Pods are buildings. They contend that the Court were clear that “building” is an ordinary word which indicates a test intended to be “simple to operate and relatively unsophisticated” (paragraph [103]) and that, as directed by the Court we must respect the “unvarnished simplicity of the statutory language” (paragraph [119]. We were invited to consider the factual context and t “physical and functional considerations” as a mater of impression or common sense in order to determine that the pods are buildings.

HMRC point to the fact that the Pods are enclosed, they have a lockable door, windows and solid walls/roof and all provide some of the basic facilities of living ((sleeping for the Basic Pods and sleeping and washing/toilet facilities for the Teacher Pods) such that the Pods provide shelter, security and privacy, to those sleeping within them and, in the off season, are used for storage. Accordingly, HMRC invite us to conclude that the Pods have sufficient substance and in all regards, as a matter of common sense, should be considered to be buildings.

With regard to the terms of Item 21 List C HMRC contend that the Appellant bears the burden of proving that (1) the Pods (as buildings) are moveable, (2) there was a demonstrated or evidenced intention in the accounting period ended 30 September 2015 that the pods would be moved and (3) any movement of the pods was to be in the course of the qualifying activity and not simply for the purpose of it.

As regards whether the Pods are moveable HMRC’s skeleton “acknowledged” that the Pods had been moved onto site in a prefabricated form indicating that they were moveable. However, HMRC contended that as moving the Pods required the use of heavy equipment and would have necessitated consent from BBNPA the impediments to movement indicated that whilst the Pods were physically moveable for all practical purposes they could not be moved. During HMRC’s oral submissions it appeared that these factors were more relevant to the question of intention to move, i.e. there could not be a relevant intention without, for instance, having obtained the necessary planning consent.

HMRC contended that it was critical, in the context of AIAs, that the Appellant be able to demonstrate in the Relevant Period that there was an intention to move the Pods. HMRC acknowledged that if the intention were not demonstrated for that period but could be demonstrated in a latter accounting period the Appellant would, subject to making the relevant claim, be entitled to claim writing down allowances by bringing the Pods into a relevant capital allowances pool but it was the evidenced intention to move which caused what was otherwise unallowable expenditure on a building to be allowable expenditure under Item 21 List C.

On the evidence, HMRC contended that there was no demonstrated intention that the Pods would be moved merely that they might, if the need arose, be moved. This they submitted was insufficient to meet the terms of Item 21 List C. HMRC invited us to consider predominantly the paucity of documentary evidence to support an intention to move in the Relevant Accounting Period (or at all) and, by reference to the judgment of the Upper Tribunal in Shaw (as nominated member of TAL CPT Land Development Partnership LLP) v HMRC [2021] UKUT 100 (TCC) because the intention of the Appellant is to be determined objectively, a stated intention must be tested by reference to all the available evidence. We were therefore invited, in essence, to take Mr Gardiner’s evidence “with a pinch of salt” as it was not corroborated by any documentary evidence.

Finally, on Issue 2, HMRC contended that to be movement in the course of a qualifying activity the movement must be required or related to the performance of the activity. The example given was that a builder needs to bring temporary accommodation onto a building site at the start of construction and remove it at the end. Those movements are, in HMRC’s submission, in the course of providing construction services. By comparison, HMRC considered that any movement of the Pods would have been for business reason, to meet varying demand on individual sites and thereby for the purpose of the qualifying activity but not in the course of it. Any movement of Pods did not, in HMRC’s view, “enable” the performance of the qualifying activity as was implicit in the statutory language “in the course of” in Item 21 List C as opposed to “for the purpose of” in section 11 CAA. HMRC submitted that the fact that the Appellant had not, over the life of the Pods, ever moved them also suggested an infrequency of movement that precluded any intention that the Pods might be moved (were that sufficient at the second limb) from being a movement in the course of the qualifying activity.

As regards the section 22 CAA exclusion HMRC rely on the dictionary definition of fixed: “place or attached firmly, fastened securely, made firm or stable in position” and “definitely and permanently placed, stationary or unchanging in relative position” as justifying a conclusion that the statutory exclusion applies as the Pods are heavy and cannot be lifted or moved without equipment and were anchored to the ground to prevent movement caused by wind.

HMRC contend that a structure may be fixed by its own weight where the structure in question is so substantial that it does not require alternative fixing. We were invited to determine the nature of “fixing” was determined by reference to the context of the structure itself.

We are grateful to the parties for their detailed skeleton arguments, comprehensive oral submissions and responses to the additional questions raised by the Tribunal during the hearing. In reaching our decision on this appeal we have considered everything drawn to our attention by way of submission and evidence. It is, however, inevitable, given the detail of the arguments and the quantity of material before us, that not everything in the appeal is given specific mention in this judgment.

It is significant to note that in this appeal HMRC do not contend that the Pods are premise/setting from which the Appellant’s qualifying trade is conducted. We are therefore looking at apparatus capable of representing plant eligible for capital allowances. We consider this a concession rightly made. The Pods are plainly assets used in the provision of the residential adventure holidays; sleeping in pods, as with the tents, is all part of the experience and adventure offered by the Appellant to the children and young people and their accompanying adults.

In our view, the concession is significant given the statutory purpose of section 21 CAA and Item 21 List C Section 23. In Urenco Henerson LJ summarises the case law which led to the enactment of section 21 CAA. Over many decades the courts and tribunals had accepted a distinction between plant on the one hand (the apparatus used to carry on a business) and the premises from which the business was carried on – the former being eligible for capital allowances and the latter not. However, in the view of the Treasury, the demarcation between the two categories of expenditure had become blurred and difficult to apply. In 1994, the provisions of what is now section 21 CAA, were introduced with the legislative purpose of promoting certainty for both taxpayers and HMRC and to prevent the erosion of the boundary between premises/setting on the one hand and plant on the other. Henderson LJ quotes at paragraph 101 from the ministerial statements on the amendments introducing the provisions (Standing Committee A of the House of Commons on 10 March 1994 Hansard, 10 March 1994 column 602).

Henderson LJ notes (at paragraph 99) that the question whether expenditure has been incurred on the provision of a building arises only where the expenditure in question is on plant and machinery (and not on premises) and represents a further hurdle “in cases where the disputed item has at least some premise-like characteristics, but nevertheless functions as plant in the taxpayer’s trade”.

He goes on:

What we take from this rather lengthy quotation, and in particular paragraph 105 of the judgment is that there are structures which are fixed which are not buildings, but all buildings will be likely to be fixed structures. Thus, we decided that it was appropriate for us to start with determining whether the pods are fixed structures and within the scope of section 22 CAA. If they are not fixed structures then, by reference to the test directed by Henerson LJ, we must then determine whether the function and substance of the Pods would drive a conclusion that they were buildings and if so whether they meet the terms of item 21 List C in section 23..

In assessing whether the Pods are fixed structures we take as out starting point the analysis provided by the Court of Session in Anchor.

That case concerned whether capital expenditure incurred by Anchor on the construction of five-a-side football pitches qualified for capital allowances. The expenditure in question had been incurred in respect of 1) excavation of the ground, 2) the cost of acquitting and laying of two geotextile terram; 3) the cost associated with laying MOT type 1 which was compacted and rolled together with a blinding layer; 4) the synthetic grass carpet and its installation. Before the Special Commissioners Anchor had successfully argued that the carpet was to be considered in isolation, with the excavation and preparation works representing alteration of land for the purposes of installing the carpet. Anchor contended that the carpet was not a structure let alone a fixed structure.

The Special Commissioner determined the appeal in the taxpayer’s favour. The Court of Session upheld the Special Commissioner’s decision but also considered the question as to whether if all the works taken together to create the pitches were to be determined as the asset in question whether it would be determined to be a fixed structure. On this issue the Court of Session stated:

We note that the Court does not provide a view on the test to be applied in determining the existence of a fixed structure. Ordinary words have been used by Parliament without a statutory definition. The Court simply evaluated the facts taken together and determined that if all components of the pitch were considered together did not constitute a fixed structure.

Applying the same approach: we consider that all the Pods are plainly structures, in the ordinary sense of the word as they are assembled from parts (predominantly timber) to form a solid object (this was a matter we also understand to be agreed between the parties). However, we do not consider that the Basic Pods are fixed as they are considerably less “fixed” than the pitches in Anchor. It is right that they are heavy, but they rest under their own weight on concrete block and beams and are anchored only for safety. Whilst we were given little information about the nature of the anchor, from the pictures we saw it was possible to see under the Pods from all angles and any anchor was considerably less substantial than 25-35kg of sand per square meter applied. We cannot see how, in light of the approach and decision in Anchor that the Basic Pods can be considered to be fixed.

We note a similar conclusion was reached in the judgment of the FTT in Andrews.

However, we consider on balance, that the Teacher Pods are fixed as a consequence of the plumbing facilities. The photographs demonstrated that there was a permeant foul water drain under each of them to which each Teacher Pod was securely attached (as they must have been). To have been plumbed in required that the Teacher Pods be in a fixed and identified place where there was access to the unground drain and then attached in a way which had a degree of permanence. That in our view amounts to fixing within the ordinary meaning of the word.

We consider that our conclusion that the Basic Pods are not fixed structures leads to a very strong inference that they cannot therefore be buildings. However, we note that Counsel for the taxpayer in Urenco submitted that all buildings would be fixed structures and Henderson LJ’s determination reflected only that it was “likely” that all buildings would be fixed structures.

Whilst it might be argued that Henerson LJ had accepted the submission of Counsel in this regard we consider that it cannot be the case that all buildings must be fixed structures because if that were the case section 21 would have no utility and Parliament is presumed (under the general rules on statutory interpretation) not to legislate for no purpose. It must therefore be the case that it is at least possible for a building not to be a fixed structure and that is also implicit in the Item 21 List C exclusion because a moveable building may not be fixed or might only be fixed temporarily

We must therefore consider whether the Basic Pods are buildings. With respect to Henderson LJ we find the paragraphs from Urenco set out at paragraph 40 above anything other than simple to apply. We bear in mind the statutory purpose and context of the provision was to exclude a taxpayer from claiming capital allowances in respect of buildings as an expedient and (presumably) less subjective way of analysing the complex premises/setting issue which had plagued the courts prior to 1994. However, it must also be the case that the blanket exclusion applies even where the buildings in question were not, as a matter of fact, premises from which the qualifying activity was conducted this is because the exclusion of buildings does not preclude the antecedent question as to whether the asset is plant.

In determining whether something is a building we must consider its characteristics and its functions. By virtue of the nature of their construction and form, the pods provide an enclosed space offering shelter and security for the occupants during the trading season and storage for tents and equipment in the off season. Those characteristics fall squarely within the scope of what has previously been considered to be a building (see paragraphs 106 and 107 of Urenco). However, HMRC accept in their guidance and accepted in argument before us, that not all structures offering shelter and security are buildings, in their view it depends on the substance of the structure providing those features.

We have not found this an easy task but on balance we consider that the Basic Pods are not buildings.

We so conclude because, in addition to not being fixed to the ground:

On that basis we conclude that the structures lack sufficient substance to be considered buildings and the expenditure on the basic pods is not excluded under section 21 CAA.

Despite our conclusion that the Teacher Pods are fixed structures we must nevertheless also determine whether they are buildings because if they are buildings and meet the terms of Item 21 List C the Appellant would be entitled to capital allowances on them.

We have concluded the Teacher Pods are fixed to the ground in consequence of the foul water plumbing. In terms of external appearance they look identical to the Basic Pods, but they provide more facilities for living than the Basic Pods with a greater level of comfort both because of the fewer number of occupants to be accommodated and the additional facilities. Though we did not understand there to be cooking facilities provided within them (because catering was provided centrally for both children and adults) there were basic kitchenette facilities which, we assume but do not know, will have included either an electric kettle or a single/double ring gas burner for boiling a kettle. The substance of the shelter offered to occupants is therefore far greater.

Considering the factors identified as meaning the Basic Pods were not buildings, the factors set out in paragraph 75(2) and (5) are, in our view materially different.

The question we must ask is whether weighing all the factors together we consider the differences sufficient to justify a conclusion that not only are the Teacher Pods fixed structures are they also buildings. Having considered the detail of the differences carefully, and on balance, we conclude that the Teacher Pods are buildings they are all but living accommodation providing sufficient security and shelter and they are fixed to the ground.

Issue 2 is relevant only to the Teacher Pods.

As set out above, in the summary of HMRC’s submissions, they contended that there were three factors which must be demonstrated to have been met before Item 21 List C applies to a structure which is a building: (1) it is moveable, (2) at the time of making the claim to capital allowances it must be intended that the buildings be moved, and (3) movement must be in the course of and not only for the purposes of the qualifying activity.

We take each of these factors in turn.

HMRC’s position on whether the Pods (now relevant only to the Teacher Pods) were moveable was not entirely clear. It is plain that to move the Pods BBNPA would have needed to agree to their movement, but our interpretation of the planning consent is that written agreement and not full planning consent was required at least to move them within Royal Oak. The correspondence between BBNPA and the Appellant regarding Tan Troed indicated that whether written agreement or full planning consent was required for a move to Tan Troed it was almost certain that it would be given. We do not see the agreement if BBNPA as inhibiting the movability of the pods.

Neither do we consider the fact that costs would be incurred in their movement as affecting their moveability. It is true that the sanitary/foul water drainage connection would need to be removed but we do not consider that sufficient to preclude a conclusion that the Teacher Pods were moveable. Nor do we consider the fact that the Pods required a forklift truck to move them short distances and a lorry and trailer to move them further precludes a conclusion that they are moveable. HMRC accept that temporary modular buildings used by builder’s will be moveable, we can see no material difference in the complexity of the requirements and cost of movement of such buildings to the movement of a Teacher Pod.

As such we conclude that factor 1 has been evidenced the Teacher Pods are moveable buildings.

Next we consider whether HMRC are correct to state that there must be a demonstrated intention in the accounting period in which the claim to allowances is made.

In this regard we have reviewed and considered the judgment in Shaw. That case concerned industrial buildings allowance and in particular whether the building in question had ceased to be used temporarily such that the terms of a provision concerning deemed continuous use was met. The Upper Tribunal was clear that as industrial buildings allowances were determine on an accounting period by accounting period basis the relevant intention that the building only be temporarily unused needed to be demonstrated in each period in which the allowances were claimed.

Here the Appellant claimed AIA in respect of the full cost of the Pods in the year in which they were purchased. We take the view that in order to do so, and in line with the binding analysis in Shaw, the relevant intention to move the pods must be demonstrated in the period of the claim. As HMRC conceded following questions put to them by us in the hearing, an absence of the relevant intention to move in the Relevant Period could not deprive the Appellant of capital allowances forever. HMRC accepted that at the point that an intention to move (if in the course of the qualifying activity) the Appellant would be entitled to claim writing down allowances by pooling the Pods (pursuant to sections 53 – 64A CAA). We consider that must be right and reinforces that a claim to capital allowances in respect of expenditure on assets described in Item 21 List C must be by reference to an evidenced intention to move moveable buildings in the course of a qualifying activity in the period of claim.

As regards the meaning of “in the course of” we note that we were not referred to any authority supporting HMRC’s position but recognise that Parliament chose different statutory language for Item 21 List C and section 11 CAA (the latter explicitly refers to “for the purposes of”).

As set out in paragraph 6(25) we have found that the Appellant did not have an intention to move any of the Pods in 2015 with the consequence that there was no entitlement to claim AIAs claimed in respect of the Teacher Pods in the Relevant Period.

Thankfully, that conclusion avoids the need for us to actually determine whether there is a difference between “in the course of” and “for the purposes of” a qualifying activity. However, we note that we do not consider it easy to discern a substantive difference between “in the course” and “for the purpose” of a qualifying activity as defined in section 15 CAA. Had we needed to decide whether the intention to move the Pods (which we have identified to have been proven for 2019) was an intention to move in the course of the qualifying activity we would have found that it was. The qualifying activity involves taking decisions about what accommodation and where accommodation is to be provided on a season basis, and when to acquire new accommodation (whether that be tents or pods). We therefore consider that a decision to move accommodation between sites would be a decision made in the course of and not simply for the purposes of the qualifying activity.

For the reasons set out above we have determined that:

Accordingly, the appeal is allowed in part.

We were not invited to determine the quantum of the appeal. By virtue of our decision the Appellant is entitled to claim the expenditure associated with the acquisition and installation of the 20 Basic Pods which we hope is a matter which can be agreed between the parties. The parties are directed to agree the quantum of the appeal and to notify the Tribunal within 72 days of the release of this judgement that they have so reached agreement subject to either party seeking permission to appeal within the prescribed 56 days in which case this direction will be suspended pending resolution of any further appeal proceedings.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.