Urenco Chemplants Limited & Anor. v The Commissioners for HMRC

This appeal concerns entitlement to capital allowances in respect of expenditure on a major construction project. The First-tier Tribunal (“FTT”) held that allowances were not available in respect of certain disputed expenditure of approximately £192m incurred on the construction of a substantial nuclear deconversion facility at Capenhurst in Cheshire. The Appellants appeal against that decision with permission of the FTT.

The allowances in dispute are those available for expenditure on the provision of plant and machinery. There are no procedural issues in dispute. The various issues relate to three questions. First, was the item in question plant? Second, if so, was the relevant expenditure nevertheless ineligible for allowances because the item was a building? Third, if the building exclusion would otherwise apply, was the item in question saved by one of the specific carve-outs in the legislation?

The Appellants, Urenco Chemplants Limited and Urenco UK Limited (together “Urenco”), are members of the Urenco corporate group. The group provides approximately 30% of the global enriched uranium supply for the civil nuclear industry and has uranium enrichment plants in the UK, Germany, the Netherlands and the USA. The UK facility is located at Capenhurst in Cheshire.

Depleted uranium hexafluoride, or “Tails”, is a radioactive and highly toxic by-product of uranium enrichment. The disputed expenditure relates to a facility known as the Tails Management Facility (“TMF”) which was constructed to process Tails safely by way of “deconversion”.

Construction of the TMF was substantially completed in 2018, at a total cost of £1bn. The treatment for capital allowances of most of that expenditure was agreed. The dispute relates to some £192m of expenditure which HMRC did not accept was eligible (the “Disputed Expenditure”). The only issue in this appeal is whether Urenco is entitled to capital allowances in respect of the Disputed Expenditure, which relates to particular items within the facilities summarised below.

Tails are radioactive, unstable, highly corrosive and toxic. The deconversion process carried out in the TMF involves removing the fluorine content of the Tails in the form of hydrofluoric acid, leaving a stable but still radioactive uranium oxide compound which can be stored more easily. The hydrofluoric acid which is produced can be sold for industrial use, unless it has any radioactive contamination, in which case it is safely destroyed. The uranium oxide will be stored at the TMF.

The TMF processes Tails from Urenco’s facilities in the UK, Germany and the Netherlands. The TMF has 8-10 operators on shift at any one time. Certain areas are designed to be unoccupied save for necessary inspection and maintenance purposes.

The key five facilities at the TMF operate as follows:

The Cylinder Handling Facility (“CHF”): Tails arrive at the TMF in large cylinders transported by lorry. Once at the “receipt and dispatch” area of the CHF, the cylinders are placed on cradles before being transported via an internal rail system to the vaporisation facility. Once emptied, the cylinders remain radioactive and are returned to the CHF to “cool down” for a period of 90-100 days.

The Vaporisation Facility: in the vaporisation facility, full cylinders are heated in autoclaves and the Tails, in gaseous form, are extracted and transferred through a network of pipes to the kiln facility.

The Kiln Facility: this contains two kilns which carry out the deconversion process, producing uranium oxide in powder form and hydrofluoric acid.

The Condenser Facility: the hydrofluoric acid generated by the deconversion process is transferred to this facility, where it is refined to a liquid state in which it can be sold.

The Uranium Oxide Store (“UOS”): the uranium oxide generated by deconversion is loaded in powder form into steel storage containers knowns as DV70s. These are transferred to the UOS and stored for up to 100 years.

We discuss below the stringent regulatory and health and safety requirements imposed on Urenco in respect of the design, construction and operation of the TMF.

The Annex to this decision contains some simplified block diagrams, taken from the Decision, which show the various facilities and components. They are colour-coded and identify the elements of each structure and the main equipment and machinery in that structure. Items in dispute are separately identified.

Unless specified otherwise, references below are to the Capital Allowances Act 2001 (“CAA”).

Plant and machinery allowances are provided for by section 11, which states as follows:

In this appeal, there is no dispute that the relevant expenditure by Urenco was capital or that it was incurred for the purposes of a qualifying activity. The only issues are (1) whether that expenditure was incurred “on the provision of plant or machinery” and (2) if so, whether it is nevertheless disallowed by the provisions of Chapter 3 of Part 2.

The two provisions of Chapter 3 which are relevant are sections 21 and 23. Section 22 contains other exclusions from eligibility for plant and machinery allowances, but it was common ground before the FTT, and not challenged in this appeal, that section 22 did not apply (Footnote: ¹).

In broad terms, expenditure which is on plant may be disqualified by section 21 if the plant is a building, but with savings from that exclusion for items described in section 23. At the relevant time and so far as material, sections 21 and 23 provided as follows:

The FTT decided that while some of the disputed items were plant, all of the disputed structures were buildings which were excluded by section 21 and not saved by Items 1, 4 or 22 of List C in section 23 (Footnote: ²).

References below to paragraphs are to paragraphs of the Decision unless stated otherwise.

The FTT broke down the issues to be resolved as follows, at [22]:

The parties disagreed as to the order in which those issues should be addressed, though they agreed that, whichever approach was adopted, the end result should be the same. The FTT considered the issues in the following order (Footnote: ³):

The parties proposed different approaches to the identification of the relevant assets for the purposes of determining their eligibility for capital allowances. Urenco argued that entitlement should be assessed by reference to each component of each facility in the TMF summarised above. HMRC contended for a “single entity” approach which considered each facility structure separately.

The FTT in effect adopted a “single entity” approach, but with numerous exceptions for separately identifiable elements of each facility structure. So, at [72], the FTT determined that each of the CHF, Vaporisation Facility, Kiln Facility, Condenser Facility and UOS should be considered as separate structures in their own right, save that the following items should be considered separately:

CHF: the internal radiation shield; the raised platforms or plinths, and the stairs and access platforms servicing the crane.

Vaporisation Facility: stairs and access platforms.

Kiln Facility: stairs and access platforms; access hatches, and the concrete plinth supporting the hopper.

Condenser Facility: stairs and access platforms.

UOS: stairs and access platforms.

Neither party challenges the FTT’s decision on this issue, so we must decide the capital allowance position by reference to the assets so identified.

The FTT considered whether the disputed assets were plant at [73]-[99].

It determined that The Kiln Facility and the Condenser Facility were plant, and that the plinths in the facilities were plant. Otherwise, it decided that the structures and disputed assets were merely part of the setting in which the plant and machinery functioned and were not themselves plant: [99].

The FTT considered whether any of the Disputed Expenditure was excluded by section 21 as being on the provision of a building at [100]-[126]. It considered that question in relation to all of the identified items, recognising that strictly it was only necessary to do so in relation to those items which it had determined to be plant.

Its conclusion was that each of the structures was a building, and all of the other separately identified assets were incorporated in or connected with those buildings. As a result, none of the Disputed Expenditure qualified for plant and machinery allowances: [126].

Having determined that all of the Disputed Expenditure was disqualified by section 21, the FTT considered at [127]-[153] whether any of the expenditure was saved by being within List C in section 23.

It concluded that none of the expenditure was so saved.

The FTT granted Urenco permission to appeal on the following six grounds:

In its Response to the Notice of Appeal, in addition to supporting the Decision HMRC contended that the FTT erred in determining that any of the items would qualify as plant (but for the buildings exclusion) and also in aspects of its analysis of Item 22 of List C.

Two principles are well-established.

First, the jurisdiction of the Tribunal in this appeal is confined to errors of law: section 11 Tribunals, Courts and Enforcement Act 2007. An appeal lies in respect of a finding of fact by the FTT only on the basis described in Edwards v Bairstow [1956] AC 14, neatly summarised by Lord Diplock as a challenge based on “irrationality” (Footnote: ⁴).

Further, as Lewison LJ cautioned in Fage v Chobani [2014] EWCA Civ 5, “appellate courts have been repeatedly warned, by recent cases at the highest level, not to interfere with findings of fact by trial judges, unless compelled to do so. This applies not only to findings of primary fact, but also to the evaluation of those facts and to inferences to be drawn from them” (Footnote: ⁵). Expressed another way, where an issue calls for an evaluative judgment, the Tribunal must not simply substitute its own evaluative judgment for that of the FTT, without identifying some error of law by the FTT which was material in reaching that judgment.

On the basis of these principles, Mr Bremner launched a full-frontal attack on Urenco’s appeal. Mr Bremner asserted that, with the exception of some aspects of Ground 5, none of Urenco’s grounds of appeal raised any point of law. As a result, they fell outside the jurisdiction of the Tribunal. To the extent that the grounds sought to attack the FTT’s evaluative judgment, he said, that was not permissible. He emphasised recent statements by this Tribunal in Cheshire Cavity 1 Storage Ltd v HMRC [2021] UKUT 50 (TCC) (“Cheshire Cavity”) that the question of whether an item was properly characterised as plant or premises was “a matter of fact and degree” (Footnote: ⁶), and that “case-law consistently indicates the task of deciding whether an item is plant or premises may not be straightforward and that is a matter of evaluative judgment” (Footnote: ⁷).

In his oral submissions, Mr Bremner stated that “what the appellants are doing in a manner that is but thinly disguised is re-running a factual case that failed below, and ultimately complaining about the evaluative exercise that a tribunal carried out which directed itself impeccably in accordance with the law”. He emphasised that whether or not something was plant was a question of fact and degree, citing authorities including Wimpy International Ltd v Warland [1989] STC 273, relying in particular on the following statement from Lloyd LJ (at page 286):

Mr Bremner also referred to the statement by Nugee LJ in the recent decision of the Court of Appeal in HMRC v Devon Waste Management Ltd [2021] EWCA Civ 584 at [85] as applicable to the meaning of “building” (Footnote: ⁸):

Mr Peacock emphasised that Urenco was not seeking to challenge any of the FTT’s findings of fact. Nor was it making any challenge based on the principles in Edwards v Bairstow as to inferences from findings of fact. Rather, he said, its grounds of appeal identified a number of errors of law, comprising either errors of legal principle or errors of statutory construction, which had resulted in incorrect decisions.

We consider that Mr Bremner’s assertion that the vast majority of Urenco’s grounds of appeal identify no error of law, and/or simply call on the Tribunal to second-guess the FTT’s various evaluative judgments, is overstated. In fact, there is little disagreement between the parties as to the applicable principles in terms of the Tribunal’s jurisdiction and role. The disagreement largely relates to their application to Urenco’s grounds of appeal. Mr Bremner’s approach would effectively mean that any FTT which had correctly identified the applicable case law principles and statutory provisions would be immune from any challenge (by either party) other than one based on Edwards v Bairstow to any decisions as to whether a particular item was plant, whether if so it was a building, and whether any of the statutory savings applied. That goes too far, particularly in an appeal such as this where the eligibility for capital allowances of novel structures such as those in dispute has not previously been the subject of judicial consideration.

While not determinative, we note that in considering permission to appeal, the FTT, having identified that an appeal could be made only on a point of law, decided that it was arguable that the Decision contained errors of law and granted permission for all grounds sought.

In Wimpy, the context of Lloyd LJ’s observations was the Court of Appeal’s conclusion from its analysis of the main authorities at that time that there was no single test for defining plant. When Lloyd LJ said that “it is not enough to show that [the commissioners] may have applied the wrong test” (emphasis added to original), in our view he was simply making the point that it is not enough to show in this context that the tribunal “may” have applied the wrong test; as he says a few sentences later, it is necessary to show that they have or must have applied the wrong test.

We do not consider that Nugee LJ’s dicta in Devon Waste can mean that the term “building” in the plant and machinery code is not to be construed purposively, and that construction then applied to the facts viewed realistically (Footnote: ⁹). That is a question of law.

Mr Bremner referred us to the following statement by Lord Lowry in Inland Revenue Commissioners v Scottish and Newcastle Breweries Ltd [1982] 2 All ER 230 (“Scottish and Newcastle”) at page 234:

In our opinion, several of Urenco’s grounds of appeal fall within the wording in Lord Lowry’s third principle, as being submissions that the FTT “misunderstood or misapplied the law in some relevant particular”. Nevertheless, we have carefully considered Mr Bremner’s argument in relation to each of the issues in this appeal and, where necessary, set out below whether we consider that the relevant issue is one that is properly within the jurisdiction of the Tribunal. As will be seen, on certain issues we have accepted Mr Bremner’s argument.

We turn now to the grounds of appeal.

We begin by summarising the most relevant case law and the principles derived from it. We then discuss the safety regime applicable to the TMF, before considering Urenco’s specific criticisms of the FTT’s decision that most of the Disputed Items were not plant.

There is no statutory definition of “plant” for the purposes of section 11. Its meaning is determined by common law and is largely judge-made.

The starting point remains the definition given by Lindley LJ in Yarmouth v France (1887) 19 QBD (“Yarmouth”) at 647:

So, once stock in trade is eliminated, this test involves consideration of the operation which the asset performs in the business, namely a functional test.

A distinction is to be drawn between an asset used in carrying on the trade and the premises or setting in which the trade is caried on. In Jarrold v John Good & Sons Ltd [1963] 1 WLR 214 (“Jarrold”), Pearson LJ noted (Footnote: ¹⁰) that the Yarmouth definition of “goods and chattels” impliedly excluded the premises in which the business was carried on. He summarised the relevant question as whether the partitioning in that case was “part of the premises in which the business is carried on or part of the plant with which the business is carried on”.

However, plant and premises (or “setting”) are not mutually exclusive. CIR v Barclay, Curle & Co. Ltd (1969) 45 TC 221 (“Barclay Curle”) concerned a shipbuilder’s capital expenditure on excavating a dock basin and concrete work to the walls and bottom of that basin used for the construction of a dry dock. The House of Lords held by a majority that although that capital expenditure might have appeared to relate to the premises in which the shipbuilder carried on its business, it was in fact used by them as plant. As Lord Reid said (at page 239):

Lord Guest’s judgment emphasised the importance of function. He pointed out that something which was a structure could also be plant. The question was whether the dry dock was plant notwithstanding that the dock might be also a structure. As regards the reference to “apparatus” in the Yarmouth definition he observed (Footnote: ¹²):

The Australian case of Wangaratta Woollen Mills Ltd v Federal Comr of Taxation (1969) 119 CLR 1 (“ Wangaratta ”) concerned a dyehouse forming part of a larger complex constructed inside external walls and including demountable wall panels designed to act as shields to prevent fibre particles drifting into different areas of the dye house. The taxpayer’s business was the dyeing and spinning of worsted yarn. The dyeing process consisted of dipping wool tops in vats containing hot corrosive liquid dyes which gave off noxious fumes. The dyehouse contained pits into which the vats were set and incorporated specially designed drains for corrosive liquids leading to an external settling pond. There were structural features in the walls and ceiling to aid ventilation of clouds of steam and poisonous gases given off whenever a vat was opened. The external walls served only to provide protection from the elements. The High Court of Australia held that except for the external walls the whole dyehouse was in the nature of a tool and was “much more than a convenient setting for the plaintiff’s operations” (Footnote: ¹³) . The ventilation system which was incorporated into the structure by design prevented the spoiling of materials and the drains removed volatile liquids which would otherwise disrupt the process.

The reasoning in Wangaratta was applied in Schofield v Hall 49 TC 538 (“ Schofield ”). In that case, the Court of Appeal of Northern Ireland held that a concrete grain silo for the temporary storage and delivery of grain was plant, as it was “a tool in the trade” carried on by the taxpayer. Lowry CJ considered that the silo was a complex whole, and not in the nature of a general setting or mere shelter. Jones LJ stated that it was necessary in assessing the status of the silo to look at the company’s activities as a whole and not on a piecemeal basis.

Benson v Yard Arm Club Ltd [1979] STC 266 concerned a ship that was converted into a floating restaurant. The Court of Appeal held that it was not plant because its only function was to serve as the premises of the restaurant. Buckley LJ cited Yarmouth, Jarrold and the majority views in Barclay Curle, describing the distinction in the following terms:

In Cooke v Beach Station Caravans [1974] STC 402 (“Cooke”) the taxpayer ran a caravan site with recreational facilities including two swimming pools. The issue was whether the expenditure on terracing, construction and excavation of the pools was expenditure on plant. Megarry J referred (at page166 d-e) to Pearson LJ’s judgment in Jarrold, and concluded that the pools were part of the means whereby the trade was carried on, and not merely the place at which it was carried on. The expenditure was therefore on the provision of plant.

In Wimpy International Ltd v Warland [1989] STC 273 (“Wimpy”) the Court of Appeal held that various items which a restaurant business installed when upgrading its premises (such as floor and wall tiles, floors, ballustrading and stairs) were not plant. Fox LJ considered the authorities including Jarrold, Barclay Curle, and Cooke. He considered that last case to be entirely in line with Barclay Curle, the pool not being the place where the trade was carried out but part of the means whereby the trade of a caravan park was carried on (Footnote: ¹⁴). He contrasted these cases with others, including Benson, which showed that the premises in which business was carried on were not themselves to be regarded as plant. Fox LJ considered that the critical question was what the item functioned as; if it functioned as part of the premises it was not plant.

The issue in Carr v Sayer [1992] STC 396 (“Carr v Sayer”) was whether immovable quarantine kennels constructed by a person carrying on a business of providing quarantine kennels and transport services for animals brought into the UK were plant. The High Court held they were premises, at which, and in which, the taxpayer’s business was conducted. Sir Donald Nicholls VC identified a number of principles which are relevant in this appeal both to the plant issue and the buildings issue. We therefore set out the relevant part of his decision in full (pages 402-403):

Bradley v London Electricity plc [1996] STC 1054 (“London Electricity”) concerned the structure for an underground electricity substation beneath Leicester Square. The structure was designed to include a system for cooling the three transformers which each had their own walled bays. The walls were designed to withstand explosions and the roof was designed to support earthing switches. Blackburne J stated as follows, at p1081:

In Attwood v Anduff Car Wash Limited [1997] STC 1167 (“ Attwood ”) the Court of Appeal held that a car wash hall did not function as a whole as plant. It housed the machinery used to wash cars which were pulled through the wash hall mechanically to be washed and dried. The wash hall was the place where the car washing, drying and waxing were carried out. It retained noise and heat and provided protection from the elements. The argument that the hall had a plant function because it enabled rainwater to be collected for use in washing cars and enabled water to be recycled was rejected. Peter Gibson LJ stated as follows (at page 1176):

In HMRC v SSE Generation Limited [2021] EWCA Civ 105 (“SSE”), the Court of Appeal considered the eligibility for plant and machinery allowances of expenditure incurred in constructing the Glendoe Hydro Electric Power Scheme in Scotland. It was common ground in the appeal that all of the items in question were plant (Footnote: ¹⁶). The case concerned in part the application of section 22, which, as we set out above, is not in issue in this appeal. It is, however, relevant, as we discuss below, in relation to the discussion of Item 22 of List C in section 23.

In Cheshire Cavity, the Upper Tribunal recently considered the availability of plant and machinery allowances for expenditure incurred in relation to underground cavities for gas storage in Cheshire. The decision is the subject of a pending appeal. The tribunal rejected the contention put forward by the taxpayer (also represented in that case by Mr Peacock) that the FTT had erred in basing its analysis on the predominant function of the cavities, since the authorities established that once an item had any function as plant that item was plant. The tribunal concluded as follows from its review of the case law (at [54]):

In the Decision, the FTT stated (at [89]) that it derived from the case law the following propositions relevant to the appeal:

The parties stated that they did not take issue with the FTT’s summary of principles. We agree that it is largely uncontroversial, save that we observe that the Upper Tribunal’s formulation of applicable principles in Cheshire Cavity suggests (at principles (6) and (8) of that decision set out above) that the sixth principle identified by the FTT may be unduly simplistic in describing the functionality test.

The FTT made extensive and detailed findings of fact, at [24]-[39], in relation to the regulatory regime governing the construction and operation of the TMF, to which neither party makes any challenge. The most material findings were as follows:

The FTT concluded that the Kiln Facility and Condenser Facility were plant, but that, with the exception of the various plinths, none of the other assets identified at paragraph 21 above were plant.

The FTT’s analysis and conclusions on the plant issue are set out at FTT [92]-[99]. It recorded Mr Peacock’s (Footnote: ¹⁷) submission that the items all performed a function in the trade, even if the structures might also be described as the premises in which the trade was carried on. He relied in particular on Wangaratta. Mr Bremner argued that the structures were merely the setting for the deconversion process.

The FTT considered that while the processing could not take place without the structures, that was not sufficient. It was not a “but for” test; rather, it was necessary to identify a specific function of the structures. The starting point was to identify the trade carried on by Urenco at the TMF, which was “the deconversion of Tails so as to produce and store uranium oxide and to produce hexafluoric acid for sale”. The FTT decided that the safety functions of shielding, containment and seismic qualification were properly viewed as part of the setting in which that trade was carried out. Wangaratta was a case where the dyehouse and apparatus were a complex whole in which every element was essential for the efficient operation of the whole. The FTT stated, at [95]:

The FTT considered that “there must be some other function performed by the structures in the trade if they are to be treated as plant” (Footnote: ¹⁸).

Paragraph [99] describes the FTT’s conclusions at [98] as conclusions as to whether the various items were plant. In fact, we consider it tolerably clear that the FTT’s determination of the eligibility for allowances of expenditure on most of the separately identified items within the facilities was not reached by deciding whether the item was plant, but by deciding whether the expenditure was “on the provision of” another item which was (arguably) plant (Footnote: ¹⁹). We therefore discuss those items below in considering Urenco’s second ground of appeal, which relates to the meaning of “on the provision of”.

The FTT’s conclusions on the plant issue were as follows:

The functions of the CHF were shielding and containment of radioactivity. These were “functions of premises and not functions in processing the Tails”. It was purpose built and could not be used in any other context but “fundamentally it simply provides a safe and secure setting in which the Tails are processed”.

The function of the internal radiation shield walls in the CHF was to shield operators and they had a specific safety purpose, but were merely part of the setting.

The plinths enabled the transportation of cylinders by rail. This was a function in the processing of Tails and so the plinths were plant.

The function of the Vaporisation Facility was shielding and containment and to shelter the autoclaves. Its functions were essentially premises. The walls and first-floor raft slab provided support for the pipework necessary for the processing of Tails, which was essentially a premises type function. None of the items were plant.

The stairs and access platforms in the Vaporisation Facility provided access for maintenance and inspection of equipment, and they were not plant.

The functions of the Kiln Facility were containment, support for the kiln, the hopper and associated equipment, and enabling the use of gravity to receive uranium oxide in the basement and use a hopper for packing it. The shelter which it provided to equipment and operators was incidental to these functions. It functioned in the process of deconversion and in the packing of uranium oxide. It was similar to the dyehouse in Wangaratta and was plant.

The Condenser Facility structure provided structural support for the condenser and also had a containment function in preventing the escape of hazardous hydrogen fluoride gas. This was expenditure on the provision of plant. It fulfilled a containment function, which was a function of premises, but did not function solely as premises and was therefore plant.

The functions of the UOS were shielding and containment. These functions, and providing shelter from the elements, were “functions of premises rather than functions in the processing of Tails”. By analogy with Carr v Sayer, a structure did not take on the character of plant simply by being used for storage by a trader carrying on a storage business, even if that storage business was highly specialised.

Mr Peacock did not accept the correctness of the approach to the functionality test approved in Cheshire Cavity of asking whether it was “more appropriate” to regard an item as premises or plant. However, he said that even on that approach the FTT had erred in law in its categorisation of “premises-type” and “plant-like” functions. The FTT had not taken into account the fact that the only purpose of most of the Disputed Assets was as “safety significant structures” which were essential to the activities at the TMF. The FTT’s key reasoning was at [95] (set out at paragraph 67 above). This disregarded the regulatory framework of the nuclear industry and confined plant to assets involved, in an entirely theoretical world, in the actual processing of Tails to the exclusion of assets that provided for the only safe way of processing Tails in the real world. This was an error of law; the question of whether an item has a plant-like function must be determined in the real world, reflecting actual use in what was the only permitted operating environment. The FTT was also wrong in concluding that an asset must actually carry on the trade processes (here of converting tails) to be plant, since plant need not have an active function but can be passive. Further, the decision in Wangaratta did not support the FTT’s approach but was in fact inconsistent with it.

Mr Peacock said that at [95] the FTT appeared to consider that the scope of Urenco’s trading activities at the TMF was limited to the “actual processing” of Tails. That materially mischaracterised Urenco’s obligations and the purpose of the TMF.

For HMRC, Mr Bremner attacked this ground of appeal as “a wholly impermissible challenge” to the FTT’s factual and evaluative conclusions for the reasons discussed above. Urenco did not contest the FTT’s summary at [89] of legal principles derived from case law, and their detailed challenges were nothing more than criticisms of the FTT’s evaluative judgment. In any event, the FTT was correct in its conclusions that most of the assets were not plant, since functions relating to containment and safety are quintessential functions of premises. Mr Bremner criticised Mr Peacock’s reliance on the passage above quoted from [95] as ignoring the FTT’s reasoning found in the decision as a whole.

More generally, said Mr Bremner, it was not sufficient on the basis of the case law, including Cheshire Cavity, for Urenco to demonstrate that the items “perform a plant-like function”. Rather it was necessary to identify the overall function of the item. In relation to the passive/active argument, the question for the FTT was whether in fact the assets functioned as plant, not whether they were capable of doing so. As to Wangaratta, the FTT was fully entitled to distinguish it.

The FTT’s essential thought processes and reasoning in relation to the plant issue are in our view found within [95]-[97], which stated as follows:

As the review of case law has shown, a critical issue in determining whether an item is plant is an assessment of whether it functions as plant in the carrying on of the business or merely as the premises or setting for the business. That was explicitly acknowledged by the FTT in those terms at [89(2) and (5)]. An item or structure which fulfils both functions will nevertheless be plant, because it is not merely the setting for the business: [89(6)]. In determining that issue, as the FTT said (at [89(8)]) “it is important to be careful and precise in analysing the function of the item”.

As we have noted, the parties agreed, as do we, that these are accurate descriptions of the applicable principles (subject possibly to the issues discussed earlier arising from Cheshire Cavity).

The question is whether the FTT misapplied or misunderstood those principles in a relevant respect in its reasoning and conclusions at [95]-[97]. Such a misapplication or misunderstanding was described by Lord Lowry in Scottish and Newcastle as an error of law (Footnote: ²⁰).

In answering that question, Mr Bremner reminded us that it was necessary to consider the FTT’s decision as a whole: see, for example, HMRC v London Clubs Management Ltd [2011] EWCA Civ 1323, at [74]. That is the approach which we have adopted.

We consider it to be axiomatic that the functionality test must be applied by reference to the taxpayer’s business as it is actually carried on. Beginning with the reference in Yarmouth (“apparatus used by a business man in carrying on his business”) all of the cases we discuss above turn on an analysis of the item in the context of the business actually carried on. It was the highly unusual nature of the businesses in fact carried on in Wangaratta and Barclay Curle which informed the conclusions in those cases. Therefore, we consider that the FTT misunderstood or misapplied the functionality test at [95] when it concluded in setting out its reasoning that (1) without the safety significant structures the actual processes carried on at the TMF could still be carried on efficiently, although that was entirely theoretical because the regulatory environment would not permit it to happen, and (2) the regulatory environment was not relevant to whether an asset performed a function in the trade.

Mr Bremner argued that it would be wrong for us to look at any part of [95] in isolation. The FTT had recognised elsewhere in its decision the importance of the regulatory regime and had acknowledged (at [94]) that “the processing could not take place without the safety significant structures in place”. The relevant legal question, he said, was simply whether the assets functioned as plant or premises, and the FTT had permissibly formed the judgment that the fact that they fulfilled an essential safety function did not determine that question.

We agree that the FTT recognised the applicable regulatory regime. We accept that the weight to be given to that factor in making the functionality assessment was a matter for the FTT. We also think that the FTT were right to observe that performance of a safety function cannot convert an item which is merely premises into plant. However, we think that the error into which the FTT fell was essentially to confuse the relevance of the regulatory/safety aspects in assessing the functionality of the Disputed Items with their relevance to the nature of the business in which functionality was to be assessed. That was what led it to state that without the safety structures the relevant processes “could still be carried out efficiently”, when in fact the effect of the regulatory constraints was that those processes—and therefore the relevant business which Urenco in fact carried on—could not permissibly be carried out at all. The relevance of the regulatory constraints set out at [24]-[39] was not confined to the functions performed by the assets, because those constraints necessarily determined what business Urenco could permissibly carry on at the TMF in the first place.

The same confusion lies behind the FTT’s assertion that “the regulatory environment is not…relevant to whether an asset performs a function in the trade”. We observe that here the FTT is going much further than Mr Bremner’s assertion (with which we agree) that a safety function cannot convert premises into plant; it is saying that the safety function is simply not relevant, and so presumably should be given no weight. In any event, the critical point is that if the trade is itself shaped and determined by the regulatory environment, then that environment must necessarily be relevant to assessing functionality “in the trade”.

We also accept the force of Mr Peacock’s argument that in its essential reasoning the FTT appears to concentrate unduly in determining functionality on the “actual processing” carried out at the TMF. Mr Bremner states in his skeleton argument that this ignores the findings elsewhere in the Decision as to the breadth of the activities carried on by Urenco at the TMF. However, we consider that the reasoning at [94]-[97] read as a whole does show that the FTT placed considerable weight on whether an item played a part in the “actual processing” of Tails. While [95] begins with a broad description of the ends towards which “the processes” at the TMF are directed, it appears to regard shielding and containment, and (at [96]) seismic qualification, as standing in contrast to “the actual processing” of Tails. It distinguishes Wangaratta on the basis that in that case the structures were part of “the dyeing process”. It then refers to “the actual processes” and “the actual processing of Tails”, which, it concludes, could be carried on without the structures in this appeal. In its detailed conclusions as to the status of the separate structures and items at [98], it describes the functions of the CHF as “not functions in processing the Tails” and of the Vaporisation Facility as “essentially the functions of premises rather than functions in the processing of Tails”. The analysis of the UOS uses the same language. The FTT concludes that those structures are therefore not plant. By contrast, the plinths are found to be plant because they enable the transportation of cylinders which is “a function in the processing of Tails”, and the Kiln Facility is plant because it also carries out functions “in the process of deconversion and in the packing of uranium oxide”.

It is not clear whether the FTT’s focus on processing and “actual processing” amounts to, or stems from, a failure to apply the principle established by case law, (explicitly recognised by the FTT at [89(3)]) that the function of plant may be active or passive. If so, that would be an error of law. We think it is more likely that it results from the drawing of a false dichotomy between items used in activities which might be said to be “actively” involved in processing Tails at the TMF and those which enable the carrying on of the entire range of activities in compliance with regulatory requirements. We consider that the FTT was correct to observe (Footnote: ²¹) that an item is not plant simply because the business could not be carried on “but for” that item. However, in our opinion it does not follow from this that an item which performs a more passive function in the business activities, and/or the main function of which is to enable those activities to be carried out safely in compliance with applicable laws and regulations, is as a result less like plant and more like premises or setting. Reading the FTT’s critical reasoning in the context of the decision as a whole, we consider that the FTT did adopt an approach to functionality which assumed that an item falling within the latter category was indeed as a result less plant-like and more like premises. Particularly given the nature of Urenco’s business activities at the TMF, we consider that this was an error, as it misunderstood or misapplied the relevant principles as applicable to those business activities as actually carried on.

The approach by the FTT which we have described also informed its conclusion that, contrary to Mr Peacock’s submissions, Wangaratta actually supported its decision that most of the items were not plant. If the FTT had adopted the correct approach, a much closer comparison to the “complex whole” in that case would in our view have been called for. Even if Mr Bremner is correct that in principle containment and safety are typical functions of premises, these were not typical premises and this was not a typical trade.

We conclude that, for the reasons set out above, the FTT erred in law in its application of the functionality test to the Disputed Items. Given the iteration between the various grounds of appeal, it is appropriate to consider what this means for the disposition of the appeal only after we have considered the remaining grounds.

Urenco’s second ground of appeal is that the FTT’s decision unduly restricted expenditure which qualified as being “on the provision of” plant and machinery.

Mr Peacock argued that case law establishes that expenditure on the delivery and installation of plant or which is necessary to make plant usable qualifies for allowances as being expenditure “on the provision of” plant. The FTT erred in not accepting that (save for the plinths) expenditure on various items was not on the provision of plant.

Mr Bremner submitted that the FTT’s conclusion that the vast majority of the items were mere premises rather than plant was simply not capable of challenge when, as here, no error of law was made out. Moreover, if particular premises were required in order for plant to be usable, expenditure on those premises was, as the FTT found, on the provision of premises, not plant. He stated that the FTT had focussed on expenditure on stairs, access platforms and access hatches, and “concluded that such expenditure was too remote from the relevant items of plant”.

There is no statutory definition of the meaning of expenditure “on the provision of” plant and machinery. A helpful review of the leading authorities was recently provided by the Upper Tribunal in Inmarsat Global Limited v HMRC [2021] UKUT 59 (TCC), which we gratefully adopt. One of the issues in that case was whether expenditure by Inmarsat on the cost of launching six satellites was expenditure “on the provision” of plant and machinery, and another was the relevance of whether the satellites “belonged” to Inmarsat.

The relevant passages from the Tribunal’s analysis of the authorities are as follows:

We consider that the following principles apply in relation to the meaning of expenditure “on the provision of” plant and machinery:

where there is an item of plant or machinery, expenditure may qualify as being “on the provision of” that plant or machinery if it is incurred in acquiring title to it, delivering or transporting it to its place of use, installing it or setting it up in working order. In ordinary language, such expenditure would be incurred in providing the plant or machinery.

In all cases, the expenditure must not be too remote from the plant or machinery, as the financing costs were held to be in Ben-Odeco. The test is an objective one.

While the product of the expenditure in issue may be a physical item it is not relevant whether that is so, or whether that physical item itself performs the function of plant or premises. Expenditure which qualifies as being on the provision of plant is parasitic on an item which is itself plant; the question was not whether the hole in the ground in Barclay Curle was plant, because the plant was the dry dock.

The FTT discusses the meaning of “on the provision of” fairly briefly. It refers at [90] to Ben-Odeco, and at [91] to the fact that in JD Wetherspoon plc v HM Revenue & Customs [2012] UKUT 42 it was said to be common ground that expenditure on the provision of plant extended to expenditure to ensure the plant could actually be operated (Footnote: ²²).

At [97] (set out at paragraph 75 above) the FTT rejected Mr Peacock’s argument that because all of the Disputed Expenditure enabled the processes at the TMF to be carried out safely, “the expenditure on each structure was to make the plant and machinery usable”. It considered that such expenditure was not part of the installation cost of the plant and machinery within the structures merely because the plant and machinery could not safely be used without it. Although it is not clear, we think that this is, at least in part, a decision in relation to the breadth of the words “on the provision of”.

At [99], the FTT summarises its conclusion as being that the Kiln Facility, Condenser Facility and plinths are plant, but the other disputed assets are not. However, the terms in which the various identified items are analysed at [98] indicate that while the FTT’s decision is in some cases based on whether an item is plant, in most cases it is apparently based on whether the expenditure was “on the provision of” plant. In some cases, it is not entirely clear on which basis the decision is reached. This is not a criticism of the FTT’s decision, since the issue before it was whether the expenditure was on the provision of plant or machinery, which encompasses both Grounds 1 and 2. Unpacking the decision for the purposes of dealing with Ground 2, the basis on which the eligibility for allowances of the fifteen items dealt with in [98] was determined was apparently as follows (by reference to sub-paragraphs of [98]):

Eligible

The Kiln Facility was plant: (7).

The Condenser Facility was eligible because the structural support which it provided was “expenditure on the provision of plant. It is necessary for the installation of the condenser and to make it usable”: (12).

The raised platforms or plinths were plant, but even if they were not themselves plant “expenditure on the plinths is fairly described as part of the cost of installing the rail system in the sense of making it usable”. The alternative finding must in our view mean that the expenditure would be on the provision of the rail system: (3).

The air sealed crane access hatch in the roof of the Kiln Facility was on the provision of plant, namely the hydrolysis chamber: (9) (Footnote: ²³).

The plinth supporting the hopper in the Kiln Facility was on the provision of plant, namely the hopper: (11).

Not eligible

The CHF was not plant: (1).

The internal radiation shield walls in the CHF were not plant: (2).

The stairs and access platforms servicing the crane in the CHF were not on the provision of plant, as they were part of the setting and were “too remote from the cost of installation or making the crane usable”: (4).

The Vaporisation Facility (excluding certain items) was not plant. The walls and first-floor raft slab supporting the pipework necessary for the processing of tails was not “expenditure to make the plant in the facility usable”; we think this must be a finding that it was not on the provision of plant: (5).

The stairs and access platforms in the Vaporisation Facility were not on the provision of plant: (6).

The stairs and access platforms in the Kiln Facility were not on the provision of plant: (8).

The access hatches in the Kiln Facility were not on the provision of plant: (10).

The stairs and access platforms in the Condenser Facility were not on the provision of plant: (13).

The UOS was not plant: (14).

The stairs and access platforms in the UOS were not on the provision of plant: (15).

So, for the purposes of Urenco’s second ground of appeal, we consider that this is a challenge to the FTT’s decisions as we have described them at (8)-(13) and (15) of the preceding paragraph.

We have concluded in relation to Ground 1 that the FTT erred in law in determining whether the Disputed Items were plant. It must follow that this could in turn have led it into error in determining whether certain expenditure was on the provision of plant. If, for example, contrary to the FTT’s findings, the CHF and the UOS were properly to be regarded as functioning as plant, then that would mean that expenditure “on the provision” of those facilities would itself be eligible. We will return below to what this means in terms of the disposition of the appeal. However, for the purposes of determining Ground 2 we must consider whether the FTT in any event erred in law in determining that the expenditure on the items we have referred to was not expenditure on the provision of plant or machinery.

We consider that the FTT was justified in rejecting as unduly broad Mr Peacock’s assertion that expenditure must be on the provision of plant where the plant could not be operated, or could not be operated safely, without that expenditure. The authorities establish that is not simply a “but for” test.

We also consider that where the FTT determined that expenditure was not on the provision of plant because it was too remote from the plant on which it was asserted to be parasitic, that was a finding of fact, applying correct legal principles, which cannot properly be challenged in this appeal. This would apply to the explicit finding to that effect in relation to the stairs and access platforms servicing the crane in the CHF (FTT [98(4)]. Since the stairs and access platforms in the Vaporisation Facility ([98(6)]), those in the Kiln Facility ([98(8)]), those in the Condenser Facility ([98(13)]) and those in the UOS ([98(15)] were all stated not to be on the provision of plant “as with the stairs and access platforms in the CHF”, we consider that these too were findings as to remoteness which involved no error of law. We therefore reject Urenco’s appeal on this ground in respect of those items.

The remaining findings of the FTT regarding whether expenditure was on the provision of plant are those regarding the walls and slab in the Vaporisation Facility ([98(5)]) and the access hatches in the Kiln Facility ([98(10)]).

The FTT’s decision regarding the walls and slab was as follows:

The FTT held that the Vaporisation Facility itself was not plant, on the basis that it was part of the setting. It is not made explicit whether the FTT’s decision in relation to the supporting walls and slab was reached on the basis that they were not plant, or on the basis that the expenditure was not on the provision of plant. However, the rejection of Mr Peacock’s argument that the expenditure qualified as it was to make plant usable strongly indicates that it was reached on the latter basis. On that basis, we consider that the FTT’s reasoning indicates that it misdirected itself as to the law, because the fact that the walls and slab themselves performed a premises type function was not material to whether expenditure on those items was on the provision of plant. If the expenditure fell within the principles we describe above, then the fact that the expenditure happened to result in physical items which performed a premises function would not render it ineligible. Of course, because the FTT did not consider that the Vaporisation Facility was itself plant, it would follow that no expenditure on its provision would itself qualify (unless it could be shown to be on the provision of some other item of plant). Nevertheless, we consider that the FTT made an error of law within Ground 2 in reaching its decision in relation to the walls and slab.

As regards the access hatches in the Kiln Facility, the FTT stated that these were not for the purposes of installing plant and nor was the expenditure to make the kiln usable. The FTT found that the purpose of the hatches was to enable kiln filters to be changed. This was a finding of fact, which was not challenged by Urenco. On the basis of the principles derived from the case law which we set out above, in light of this finding of fact we consider that the FTT was entitled to reach the conclusion which it did, for the reasons it gave. It made no error of law.

In conclusion, we dismiss Urenco’s appeal on Ground 2, except as regards the FTT’s conclusion in relation to the walls and slab in the Vaporisation Facility. We set out below our decision as to the disposition of the appeal.

Subject to section 23, expenditure on the provision of an item which may be plant will not qualify for plant and machinery allowances if it is expenditure on the provision of a building. This includes expenditure on its construction. Section 21 provides that for these purposes, “building” includes an asset which is:

incorporated in the building,

is in the building and is of a kind normally incorporated in a building, or

is in or connected with the building and is contained in List A.

In this appeal, the relevant items in List A are walls, floors and stairs.

Helpfully in this appeal, the FTT considered this issue in relation to each item of Disputed Expenditure, and not only those which it had determined to qualify as being on the provision of plant. The FTT decided that each of the structures was a building, and every other identified asset was incorporated in or connected with those buildings. On that basis, none of the items qualified, regardless of whether the relevant expenditure was on the provision of plant: [126].

Urenco appeals against that decision.

The FTT noted that there was no statutory definition of “building”, and no binding authorities on its meaning for the purposes of section 21. Having discussed the submissions of the parties, the FTT stated as follows:

The FTT determined that all of the £192m of Disputed Expenditure would be disqualified by section 21. Mr Peacock stated that Urenco accepts that if the five facilities at the TMF are themselves “buildings”, then expenditure on the other separately identified assets would, as the FTT found, be disqualified because those assets would be incorporated in those buildings or found in List A. If, on the other hand, the five facilities were not themselves buildings and none of the other assets was itself a building, then none of the expenditure would be prevented from being plant by section 21. That is because the extension of section 21 by section 21(3) to assets which are in, incorporated in or connected with a building applies only where there is a building in the first place, as shown by the references throughout section 21(3) to “the” building.

The issue under Ground 3 is therefore whether the FTT erred in law in deciding that each of the five facilities was a building for the purposes of section 21. The FTT’s reasons for concluding that they were, at [112]-[125], can be summarised as follows:

As regards the CHF, its “predominant purpose…is to protect the public offsite and employees onsite by providing radiation shielding, containment and seismic qualification so as to keep harmful things inside and not to provide shelter or security from the outside”. However, radiation shielding and containment “can also be a function of a building”. The fact that the CHF reflected specific nuclear safety requirements did not mean it was not a building. The cladding of part of the CHF was for planning or aesthetic reasons, but the roofs were not. The roof cladding protected the shield roof from the elements, but otherwise the roof and walls were not intended to provide shelter to people or things. The CHF “does have the inherent characteristics of a building, namely it has walls and a roof. It also functions as a building in containing things”. Looking at the CHF, “with or without the cladding, it looks like a building…in everyday terminology it is naturally described as a building”.

As regards the Vaporisation Facility, its upper storey provided shelter for equipment and “the concrete box which is the ground floor” provided shelter for the autoclaves, though that was not its primary function. It had four walls, a roof and an internal concrete first floor. The principal function of the ground floor concrete box was “containment, which is a typical function of a building”. As a whole it was “naturally described as a building”.

The Kiln Facility was “effectively 3 concrete boxes in the basement, the ground floor and the first-floor”. The concrete walls and floors were required for seismic qualification of the structure and the equipment it supported. They also provided a containment function to prevent escape of loose uranium oxide powder. The kiln facility “has the inherent characteristics of a building, namely it has walls, a roof and internal floors”. It was intended to provide containment “which is a typical function of a building”. Looking at the kiln facility, “with or without the cladding, it looks like a building…in everyday terminology it is naturally described as a building”.

The Condenser Facility was a structure which seismically qualified the condenser and other items of equipment. The cladding provided containment in relation to fumes which were potentially radiologically contaminated, but “if one removes the cladding, then one is left with steel frame external walls and concrete floors”. The structure was “very much at the margin as to whether it would naturally be described as a building”. One of its functions was to contain hazardous fumes, and “[a]s such, it does fulfil one of the functions of a building and with four walls, a roof and internal floors it gives the appearance of a building”. On balance it was “properly described as a building”.

The UOS was “most clearly a building”. It had four walls and a roof. Not only did it provide containment, but the walls and roof protected the interior from the element and enabled the space to be dehumidified. From the exterior “it is indistinguishable from a large warehouse building…in everyday terminology it is naturally described as a building”.

Mr Peacock argues that the FTT made the following errors of law in reaching its decision:

The term “building” in section 21 must be defined within its particular context and as such is not to be given a wide meaning or simply its meaning in ordinary usage.

The appearance of a structure is not determinative. Additionally, for most of the facilities their appearance with cladding was irrelevant.

Function is more important than characteristics.

Whether or not a structure “can” perform a function of a typical building is not the test; rather, it is the actual function or purpose which must be determined, and whether that it typical of a building.

The main function of a building is shelter, and the FTT found as a fact that that was not the main function of the facilities.

Mr Bremner submits that Urenco has not identified any misdirection in law by the FTT as to the meaning of “building”, and instead is simply criticising its evaluative exercise of judgment, which is not a valid ground of appeal. Referring to Devon Waste (Footnote: ²⁴), he says that where statutory language takes its normal meaning, which it should here and as Urenco conceded before the FTT, the application of that language is entirely a question of fact. In any event, the FTT reached the correct conclusion on the issue. Parliament must be taken to have intended the term “building” to be understood in a manner consistent with ordinary usage. The authorities in which the term has been considered show that a practical and common-sense approach is to be adopted. Carr v Sayer establishes that a building does not become plant simply because it is purpose-built for a particular activity.

Further, argues Mr Bremner, the FTT was right to have regard to the form or inherent characteristics of a structure in deciding whether the facilities were buildings. Something more than function (such as inherent characteristics) must inform the question of whether an asset is a building, or section 21 would otherwise effectively repeat the common law test for plant. This would also defeat the purpose of section 21, which was to “draw a line in the sand” under the common law tests.

Mr Bremner said that having had the benefit of a site visit, witness evidence and photographs, the FTT was clearly entitled to find that the facilities had the appearance of a building. Indeed, he argued, “having regard to the scale, construction and appearance of the buildings, the FTT could not reasonably have come to any other conclusion”.

Section 21 must be construed purposively, in its context, and applied to the facts, viewed realistically. As to purpose, at [102] the FTT helpfully stated as follows:

In SSE, the Court of Appeal approved the Upper Tribunal’s description of the intention of the code in section 21 to 23 as being “‘to draw a line in the sand’ and entrench the understanding of the different classifications” in common law of buildings and structures on the one hand and plant on the other (Footnote: ²⁵).

The subsequent legislation in this area highlights the difficulty of drawing such a line. Sands shift, not only because issues will arise which had not been specifically dealt with by case law at the time the line was drawn (in 1994) but because assets such as those in this appeal were not contemplated at that time. Further, at the time of the expenditure in this appeal, it was not the case that buildings attracted a more “appropriate rate of write off”; they attracted no write off at all (Footnote: ²⁶). While the background to the code in sections 21 to 23 is in principle of assistance to us in construing the meaning of “building”, in that case law guidance prior to 1994 would help to inform that construction, in practice there is almost no specific guidance available on that issue, and in any event we must determine it in relation to novel and unusual assets. This is not a situation in which, in Mr Dorrell’s words, we should guard against a “future reclassification” of assets, because assets such as these have not previously been classified.

Turning to the meaning of “building” in section 21, we can see the allure of simply giving the word its “natural” or “everyday” meaning. The FTT explicitly stated (at [107]) that it accepted that the word was “to be given a meaning consistent with its ordinary everyday usage”.

However, the essential limitation of that approach is that in the context of sections 21 to 23 it begs a critical question. That question is: to what extent does the everyday meaning of “building” depend on appearance or characteristics on the one hand and to what extent on purpose or function on the other?

We do not accept Mr Bremner’s argument that Urenco simply has no basis (other than an Edwards v Bairstow challenge) to appeal to this tribunal against the FTT’s decision on this issue, because, like the word “waste” in Devon Waste, the word “building” has its ordinary meaning, and that is a question of fact. That assumes the answer to the question we must decide. As Nugee LJ said in the passage on which Mr Bremner relied:

The term “ordinary meaning” is itself lacking precision. In SSE, the Court of Appeal had to construe the meanings of “tunnel” and “aqueduct” (Footnote: ²⁷) in List B of section 22. Rose LJ (as she then was) commented on the FTT’s discussion of the “ordinary meaning” of the word tunnel as follows, at [39]:

In this appeal, we do not have to decide whether “building” is itself a “chameleon word”. The point of more general application being made by Rose LJ, with which we respectfully agree and which we consider particularly pertinent in this case, is that many words have a number of ordinary (or “everyday”) meanings, and the statutory meaning is not necessarily the widest one.

An analysis which takes as its starting point that “building” bears its ordinary everyday usage has the superficial attraction of simplicity but may lead to a flawed conclusion. It assumes that when the word is construed purposively and in context, that remains the correct approach to interpretation. Second, because there may be a number of “everyday” meanings, it provides no safeguard against an analysis which adopts the widest of those meanings. That widest meaning may be one which places much more emphasis on appearance than function. Third, in a situation where the analysis is unclear, it can easily become a form of tie-breaker; if it looks like a building it must be a building.

We consider that in its reasoning, the FTT unfortunately failed to avoid these risks.

In construing “building” in section 21, the FTT was in our view correct in deciding, at [107], that both the characteristics and functions of the asset are relevant. However, we have concluded that in its application of that principle to the five facilities at the TMF the FTT erred in law in certain respects.

The context in which sections 21 to 23 were enacted is described above. We agree with Mr Peacock that it follows from the way in which the provisions interact that there is a difference between a “building” and a “structure”, such that not every structure is necessarily a building. That is made clear by section 22(3) (Footnote: ²⁸). This has the result that most of the leading authorities (Footnote: ²⁹) do not offer direct guidance, because they discuss the difference between plant and a “building or structure”.

So, it is necessary to consider what would make a particular structure a building within section 21. A spectrum of everyday meanings is possible. One everyday meaning of building would simply be anything which has four walls and a roof and/or looks like a building, regardless of its function or purpose. Slightly further along the spectrum would be a structure with four walls and a roof which is capable of performing any of the functions which a building might be said in everyday usage to perform. Those functions might include shelter, containment or enclosure, privacy, storage or protection. Further along the spectrum again would be a structure which is not only capable of performing such a function but was designed for that purpose. Further along again would be a structure with four walls and a roof the predominant function of which was one of the central functions of a building, such as shelter.

In our opinion, the context and purpose of section 21 supports a construction of “building” in which function is particularly important, and in which appearance or physical characteristics should not be the primary determinant of the line in the sand which sections 21 to 23 were intended to draw. As discussed above, the authorities make clear that the function actually performed by an asset in the trade carries very considerable weight in determining whether it is plant. We consider that section 21 does not have the purpose or effect that in then determining whether an asset is disqualified from being plant because it is a building an approach should be adopted in which appearance or physical characteristics are predominant and the actual and predominant functions of the asset are subsidiary.

We therefore consider that the FTT erred in law in several inter-related respects in its approach to the issue of whether or not the five facilities were buildings. First, in taking as its starting point the “ordinary everyday” meaning of building, the FTT failed to acknowledge or discuss the various potential everyday meanings of that term and to consider which of them might best accord with a purposive construction of section 21. Second, in placing emphasis in its reasoning for each of the facilities on their physical appearance or characteristics and how they would be “naturally described”, the FTT failed to guard against the pitfalls we set out at paragraph 125 above. In particular, its approach resulted in a focus on appearance or characteristics rather than on function. Third, in considering the functions of the facilities, the FTT placed weight not on what it had found as a fact to be the predominant functions of those facilities (Footnote: ³⁰) but instead on actual or potential functions which it considered were consistent with the functions of a building. That approach is seen most clearly in relation to the FTT’s conclusions regarding the Condenser Facility:

We discuss below the consequences of the errors of law which we have found for the disposition of the appeal.

Expenditure on buildings which section 21 would otherwise prevent from being eligible for plant and machinery allowances may be saved by List C in section 23. List C includes at Item 22 expenditure on “the alteration of land for the purpose only of installing plant or machinery”.

Urenco argued before the FTT that any of the Disputed Expenditure which was found to be disqualified by section 21 would be saved by Item 22.

The FTT dealt with this issue at [145]-152]. Urenco argued that in Item 22 “land” included buildings and other structures, so that constructing a building on land amounted to an alteration of the land. The argument was based on the definition of “land” in the Interpretation Act 1978 (the “Interpretation Act”). HMRC argued that that definition did not apply as there was a “contrary intention”.

The FTT decided as follows:

Urenco repeats its argument before the FTT as to the meaning of “land”. In relation to the FTT’s finding that there was (in any event) a purpose other than installation, Urenco appeals on the basis that:

That finding was plainly not apt to describe the reasons for the various stairs, platforms, plinths or access hatches as found by the FTT.

In any event, the FTT erred by failing to recognise that in each case the purposes which it identified at [151], in particular protecting operatives, the public and the environment and housing the plant and machinery, were simply part of the installation purpose under Item 22.

As explained below, we have concluded that the FTT made no error of law in its decision regarding the “for the purpose only” requirement in Item 22. It is therefore unnecessary for us to determine the issue before the FTT relating to meaning of “land” in Item 22. Like the FTT, we consider it appropriate for that question to be dealt with in an appeal where it is dispositive (Footnote: ³¹).

The FTT decided that Urenco failed the sole purpose requirement in Item 22. Mr Bremner’s first argument for HMRC was that no appeal against that decision was possible other than one based on Edwards v Bairstow, because purpose was a paradigm question of fact. While we would accept that as a general proposition, Mr Peacock has framed his appeal in this case (at least in part) as alleging an error of law, namely as to the meaning of “the purpose…of installing”. On that basis, we consider that we do have jurisdiction to determine the issue.

Having said that, Mr Peacock’s first submission was that the FTT’s findings at [151] were inconsistent with its findings elsewhere in the decision in relation to the reasons for the stairs, platforms, plinths and access hatches. Taken separately from his second submission, we consider that this would, in substance, be a challenge as to the rationality of a finding of fact, for which Urenco has no permission. In any event, we agree with Mr Bremner that it would not follow from any other findings by the FTT as to the reasons for those items that those reasons must necessarily have been the only purpose of the expenditure on those items. We therefore reject this argument.

Mr Peacock’s main submission was that the purposes categorised by the FTT as non-installation purposes were in fact a necessary part of the installation, so that on the proper construction of Item 22 they were for the purpose of installing the plant or machinery.

Some guidance as to the meaning of “installing” in Item 22 can be found in SSE. The Upper Tribunal in that case set out its views obiter: [102] of the decision. The particular issue before the Upper Tribunal, whether that term extended to the creation of an asset in situ, does not arise in this appeal. However, the Tribunal’s comments are of some relevance to Ground 4. Having reviewed the authorities, the Tribunal stated as follows:

In the Court of Appeal, Rose LJ commented as follows on the Upper Tribunal’s analysis (at [69]):

While the Upper Tribunal’s reasoning relating to the meaning of “install” is not binding on us, like the Court of Appeal we see its force and do not dissent from it.

The FTT regarded the purposes described in the final two sentences of [151] as not being “for the purpose only of installing” plant and machinery. We consider that they were justified in doing so. Mr Peacock’s proposed construction of “installing” would give an extremely wide meaning to the term, and afford little weight to the word “only”. No case was put forward why a purposive construction would or should lead to such a result. We agree with the Upper Tribunal in SSE that “installation” is apt to describe a process of integrating one thing into another, and not the construction or manufacture of an asset before it is installed. We also agree that the use of the word “only” makes clear that the saving in Item 22 was intended to be a limited one.

The FTT accepted that Urenco’s purposes in incurring the expenditure included the installation of plant and machinery. They were entitled to find that Urenco also had other purposes, and the expenditure therefore fell outside the saving in Item 22 (even if it was on the alteration of land). Whether or not those purposes could properly be described, in Mr Peacock’s words, as “a necessary part of the installation”, we do not agree that Item 22 should be construed to treat such purposes as the purpose only of installing plant or machinery.

We therefore dismiss Urenco’s appeal under Ground 4.

Where expenditure would otherwise be disqualified by section 21 as being on a building, Item 1 of List C in section 23 saves from section 21 expenditure on machinery, and Item 4 saves expenditure on “manufacturing or processing equipment”. Urenco argues that the saving extends to expenditure “on the provision of” those items.

The argument that Items 1 and 4 could apply to expenditure “on the provision of” the relevant items was raised by Urenco at a late stage in the proceedings before the FTT. The FTT decided that Urenco could amend its grounds of appeal and rely on the issue. Its decision was as follows:

The issue arising under Ground 5 is a question of law, namely whether Items 1 and 4 apply to expenditure “on the provision of” machinery and manufacturing and processing equipment.

Mr Peacock submits that even though Items 1 and 4 do not refer explicitly to expenditure “on the provision of” those items, a careful reading of the precursor legislation shows that Parliament intended those words to be incorporated, and their omission is “a clear and obvious drafting slip”. He also argues that the legislation must in any event be interpreted purposively by correcting any obvious drafting error and incorporating those words.

Mr Bremner broadly submits that the FTT was correct in its reasons and conclusion.

There was a lack of clarity before the FTT in relation to which of the Disputed Assets would potentially be saved if Mr Peacock’s argument was correct. Indeed, some of the items described by the FTT at the end of [141] as so put forward by Mr Peacock had not been held by the FTT to be separately identified assets for the purposes of the appeal. The confusion was further compounded by the fact that the FTT granted Urenco permission to appeal under this ground not only in relation to the assets described at the end of [141] but also further assets, namely the Kiln Facility and the Condenser Facility. We asked Mr Peacock during the hearing to clarify which assets he was now suggesting would be relevant for the purposes of this ground and the list was longer still, including in particular the UOS.

In the circumstances, we can understand Mr Bremner’s objections that Urenco should not be able to extend the scope of its appeal to issues which might involve findings of fact but which were not argued before the FTT, even if the FTT granted permission to appeal in respect of them. Mr Bremner also points out that section 23(4) would require consideration; this provides that Items 1 and 2 exclude “any asset whose principal purpose is to insulate or enclose the interior of a building or to provide an interior wall, floor or ceiling…intended to remain permanently in place”. The position is further complicated by the dependency, accepted by Mr Peacock, between Ground 5 and whether (under Ground 2) expenditure is in any event “on the provision of” plant or machinery. As we have set out above, with one exception we have dismissed Urenco’s appeal under Ground 2.

For the reasons below, we have concluded that the FTT did not err in law in rejecting Mr Peacock’s construction of Items 1 and 4. Therefore, we do not need to determine which expenditure could have been saved by those Items on that construction, and we do not do so.

Mr Peacock’s case is essentially that (1) the predecessor legislation to section 23 saved expenditure “on the provision” of the relevant items, (2) section 23 is a product of the Tax Law Rewrite project, (3) save for identified changes (of which this was not one) that exercise was intended to enact the previous law without material change, and so (4) the omission of the words “on the provision of” in section 23 is an obvious drafting error, which we can correct, if necessary through a purposive construction.

The predecessor legislation was in the Capital Allowances Act 1990 (as amended by the Finance Act 1994) (“CAA 1990”). The relevant provisions were organised differently to the CAA, being set out in two tables with two columns. The list of “saved” items in the first column of Table 1 was rewritten into section 21. The list of saved items in the first column of Table 2 was rewritten into section 22. The second column of Table 1 was rewritten into Items 1 to 16 in List C. The second column of Table 2 was rewritten into Items 22 to 33 of List C.

In the CAA 1990, expenditure “on the provision of” machinery and manufacturing or processing equipment was expressly saved, but in different ways for items in Table 1 and Table 2. For Table 1 it was done by generally applicable opening words in paragraphs1(3)(a) and 2(3)(b) of Schedule AA1 CAA 1990. For Table 2, by contrast, the words “on the provision of” were inserted in relation to each specific item (save, for some reason, the first one (Footnote: ³³)).

When the CAA 1990 was rewritten into the CAA, the words “on the provision of” were not expressed to apply to the items in List C which were carried over from the first column in Table 1 CAA 1990, either by general wording or by specific incorporation in each item. Section 23(3) now provides that section 21 does not “affect the question whether expenditure on any item described in List C is, for the purposes of this Act, expenditure on the provision of plant or machinery”. Items 1 to 16 contain no general or specific reference to expenditure “on the provision of” those items. By contrast, Items 23 to 33 all contain language referring specifically to “the provision” of those items.

Mr Peacock submits that the failure to include expenditure “on the provision of” Items 1 to 16 is a clear and obvious drafting slip. He referred in support to a Memorandum submitted by the Inland Revenue to Parliament dated 22 January 2001 on the Tax Law Rewrite project which stated that section 23(3) “simplifies some complex provisions identifying what can be treated as plant or machinery. If anything, the simplification extends the scope for obtaining plant and machinery allowances”. He also referred to the Explanatory Notes to the CAA published by the Inland Revenue, which contain an Annex identifying some 66 minor changes to CAA 1990 made in the rewrite, which does not mention the removal from Items 1 to 16 of expenditure “on the provision” of those items. He further argued that if those words were not read into Items 1 to 16 then that would undermine Parliament’s stated intention in 1990 in introducing the predecessor rules to preserve the then existing case law, which saved such expenditure.

The leading authority on the approach to statutory construction to be adopted in relation to provisions affected by the Tax Law Rewrite project is Derry (R) v HMRC [2019] UKSC 19 (“Derry”), in which Lord Carnwath stated as follows:

Lady Arden added the following observations:

Mr Peacock submitted that we should read “on any item” in section 23(3) as “on the provision of any item”. In the alternative, we should simply correct the obvious drafting error, relying on Pollen Estate Trustee Company Ltd v HMRC [2013] 3 All ER 742 (“Pollen Estate”).

The Court of Appeal in Pollen Estate described the “considerable caution” which must be exercised in such an approach as follows, at [25]:

The removal of the “provision” language from Items 1 to 16 by the CAA should properly have been included in the Annex of minor changes to the CAA 1990 contained in the Inland Revenue’s Explanatory Notes to the CAA. We also have in mind Lady Arden’s comment in Derry that we should respect the fact that, but for minor changes, the Tax Law Rewrite was not intended to change the law. Additionally, we take into account that we were not presented with any extra-statutory material which indicated that the draftsman intended such a change.

However, we agree with the FTT that on balance Mr Bremner has the better of the argument. Most importantly, the wording of section 23 is plain. Items 1 to 16 do not include, either by general or specific wording, the reference to “provision” which is specifically inserted into Items 23 to 33. Parliament must be assumed in enacting section 23 to have been aware of the then existing case law concerning expenditure “on the provision of” plant or machinery: HMRC v Empaminondas Embiricos [2020] UKUT 370 (TCC) at [63]. As emphasised in Derry, the correct approach to statutory interpretation in a situation such as this is undermined by a need to refer back to the predecessor provisions and, in general, there should be no need to investigate the consolidated provisions. As explained by the FTT, a literal construction of Items 1 and 4, without having to read in words referring to provision, produces a result which is not illogical or absurd. The structure of the savings changed in the rewrite process, and the fact that the drafter was aware of the distinction between expenditure “on” an item and expenditure “on the provision of” an item is evidenced by section 23(3), in which both are used within the same subsection. We are not persuaded that Parliament made a clear and obvious error in relation to the first sixteen Items in List C.

Urenco’s appeal under Ground 5 is for these reasons dismissed.

Ground 6 of Urenco’s appeal in substance brings together the first five grounds. It was not the subject of separate oral submissions by Mr Peacock, and in so far as it needs to be dealt with separately we do so in what follows.

In summary, we have decided as follows:

The FTT erred in law in its application of the functionality test in determining whether the Disputed Items were plant or machinery.

The FTT did not err in law in deciding whether expenditure was “on the provision of” plant or machinery, save in its decision as to the walls and slab in the Vaporisation Facility.

The FTT erred in law in deciding that section 21 applied to prevent all of the Disputed Items from being eligible for plant and machinery allowances.

The FTT did not err in law in deciding that none of Items 1, 4 or 22 of List C in section 23 would apply to save expenditure otherwise within section 21.

Section 12 of the Tribunals, Courts and Enforcement Act 2007 provides that where the Tribunal finds that the FTT’s decision involves the making of an error on a point of law, it may (but need not) set the decision aside. If the Tribunal sets it aside, it must either remit the case to the FTT with directions for its reconsideration, or remake the decision.

We must first decide whether to set the decision aside. Mr Bremner argued that if we did find any error of law, we should conclude that we did not need to set the FTT’s decision aside because the error was not material. In this context, we bear in mind the following guidance offered by the Court of Appeal in Patrick Degorce v HMRC [2017] EWCA Civ 1427 (“Degorce”) at [95]:

The approach set out in Degorce is sometimes described as a test of materiality. That is something of an oversimplification. If we find an error of law, as we have done, then we should only decline to set the FTT’s decision aside if we are satisfied that the error could have made no difference to the decision. Here, we consider that the FTT’s decisions on those issues where we have found errors of law might have been different but for the errors. So, we should exercise our discretion to set aside the decision, and we do so.

We have considered whether we should remit the decision or remake it. We have taken into account that the errors we have found will require the application of the relevant legal principles as we have described them to the particular facts of the case. We are also mindful that the parties may wish to present additional arguments and evidence in addressing afresh the issues where we have identified errors of law. Although we have all the fact-finding powers of the FTT if we decide to remake a decision (Footnote: ³⁴), we have concluded that the more appropriate course taking these points into account is for the case to be remitted.

We see no need for a differently constituted FTT to hear the remitted case.

We therefore set aside the FTT’s decisions that:

With the exceptions found by the FTT, the Disputed Expenditure was not on the provision of plant or machinery.

Expenditure on the walls and slab in the Vaporisation Facility was not “on the provision” of plant or machinery.

All of the Disputed Expenditure was prevented from being eligible for plant and machinery allowances by section 21.

The FTT shall remake these decisions. Since the FTT’s decision at [98] does not clearly distinguish between decisions that the expenditure was not “on” plant or machinery and decisions that it was not “on the provision of” plant or machinery, we direct that in remaking its decision at [98], the FTT should consider all of the separately identified assets which it decided at [98] were not eligible.

In remaking the decisions which we have set aside, the FTT shall take into account the reasoning and conclusions as set out in this decision in relation to the errors of law we have identified.