Archive for November, 2017

What is a ‘trade process’?

The Chancellor is due to present his Autumn Budget on the 22nd of this month.  The market anticipates he will make changes to stamp duty and pension tax relief but will leave capital allowances alone.  We wait to see what is announced.

Capital allowances, a form of tax relief for both income tax and capital tax purposes, are intended to encourage businesses to invest in capital equipment (e.g. upon plant and machinery – see below) at the business’s own premises.  The phrase does not include the construction of a building or other structures nor works involving the alteration of land.

Enhanced allowances are available for the use of certain energy efficient products and the Government Department for Energy and Climate Change’s explanatory pamphlet published in October 2014 is well worth a read.

The expenditure must be made by the claimant in relation to its own business conducted at its own premises.  This is something to bear in mind and discuss with advicers if a landlord makes a contribution to, for instance, a tenant’s fit out costs on taking new premises.

The rules surrounding capital allowances are detailed and complicated but very basically, “plant and machinery” is widely defined to include air-conditioning, heating, lifts etc. used “in connection with services mainly and exclusively as part of manufacturing operations or trade precesses”.  The phrase ‘trade processes’ led to a perhaps surprising Court of Appeal decision in Iceland Foods Limited v Jane A Berry (Valuation Officer) [2016] EWCA Civ 1150 in which it was decided that a retailer selling frozen foods did not use refrigeration plant in a ‘trade process’.  The court held “Retail warehouses undertake a trade but not normally any trade process, certainly not so far as keeping the shop or the equipment therein at an appropriate temperature is concerned.”

Leave to appeal to the Supreme Court was granted in April 2017 so watch this space.