In Cheshire Cavity Storage 1 Limited -and- EDF Energy (Gas Storage Hole House) Limited v HMRC [2019] TC07301 the FTT dismissed claims to capital allowances on underground gas storage cavities. They were not plant and machinery.
A person who is engaged in Qualifying activities can claim capital allowances on qualifying expenditure on plant and machinery:
- S.22 CAA 2001 list B is a list of items that are excluded from plant and machinery allowances as they are classed as structures.
- S.23 list C is a caveat to list B as it is a list of expenditure specifically not classed as relating to buildings or structures.
Both appellants were companies in the EDF Energy PLC corporate group. The two companies operate gas storage facilities on adjoining sites in Cheshire.
- The companies used underground cavities filled with brine to store gas and incurred costs to de-brine the facilities. In addition, EDF incurred costs creating further gas cavities by a process of leaching and de-brining. The costs incurred by the two companies here exceeded £40 million.
- The companies claimed capital allowances on these costs.
- HMRC disallowed the capital allowance claims for CCS for the periods ended 31 December 2011 to 31 December 2013, and for EDFs for the periods ended 31 December 2006 to 31 December 2013. Both companies appealed.
The FTT dismissed the appeal finding that:
- The cavities were not plant. A plant-like function does not necessarily make premises plant, in circumstances where the premises also functions as premises.
- The cavities did have a plant-like function but that was an incident of the construction and not the reason they were constructed in the manner they were, and there was no evidence that their functioning in a plant-like manner was essential.
- The appellants business was the short-term storage of gas so the premises-like function of shelter and containment was the significant and predominant function of the cavities.
- Even if they were plant, they were excluded from allowances by s.22 CAA and were also not saved by List C.
- The judge said that list B and C were not intended by Parliament to be a test of function; they were intended as qualifications on what case law had found to be plant, which was a functional test. The lists were definitive and could not be applied by analogy, e.g. it could not be said that the cavities were within list C because they were like storage tanks, for the list to apply they must be storage tanks.
- The exemption at List B for structures ‘in use for the purposes of an undertaking for the extraction, production, processing or distribution of gas’ did not apply as the cavities were being used to store gas.
- The cavities were not storage equipment, cold rooms, silos or storage tanks (all items on list C) nor were they created for the installation of plant and equipment.
Useful guides on this topic
Plant & machinery (companies): allowances
What expenditure qualifies for plant and machinery allowances
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