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I am currently in negotiations with the Inland Revenue regarding capital allowances on floating marina units.
I have claimed the units (Walcon System 2000) as plant and machinery as suggested in Tolley's Tax Data, Capital Allowances Chapter, List E.
The Inspector has countered by quoting Table 2 of Schedule AA1 to the Capital Allowances Act 1990, which would indicate that the units should be treated as industrial buildings.
I am currently in negotiations with the Inland Revenue regarding capital allowances on floating marina units.
I have claimed the units (Walcon System 2000) as plant and machinery as suggested in Tolley's Tax Data, Capital Allowances Chapter, List E.
The Inspector has countered by quoting Table 2 of Schedule AA1 to the Capital Allowances Act 1990, which would indicate that the units should be treated as industrial buildings.
The units are attached to the quay wall at one end and at the other by a vertical anchor in the bed of the dock. Both anchorages are sliding attachments to allow for vertical movement when other vessel pass by. Can any readers please advise?
(Query T16,070) - Shipmate.
Unfortunately we are not told of the nature of trade surrounding the floating marina units and so do not know under which 'qualifying activity' on which the claim in respect of the 'qualifying expenditure' in question can be made.
Table 2 of Schedule AA1 to the Capital Allowances Act 1990 is now under section 22, List B (excluded structures and other assets) of the 2001 Act, and item 5 of that list says, 'A dock, harbour, wharf, pier, marina or jetty or any other structure in or at which vessels may be kept, or merchandise or passengers may be shipped or unshipped'. However, section 23, List C (expenditure unaffected by sections 21 and 22) at item 21 says, 'Moveable buildings intended to be moved in the course of the qualifying activity'. This is followed by item 24, 'The provision of any jetty or similar structure provided mainly to carry plant or machinery'.
The actual nature of the 'Walcon System 2000' is a 'modern durable aluminium-structured, timber decked pontoon system', consisting of walkway units and from this it is presumed that the qualifying activity is either a trade or an ordinary Schedule A business (section 15(1)(a) and (b), Capital Allowances Act 2001). So it seems the marina will not be treated as plant and machinery.
There has been case law on the subject and perhaps the nearest, which also sums up the Revenue's approach to the case in question, is contained in paragraph CA21100 of the Capital Allowances Manual: 'The test of whether an item is apparatus used in carrying on a business is sometimes called the functional test. It is set out in the case of Benson v The Yard Arm Club Ltd [1979] STC 266. In that case Lord Justice Buckley said "The functional test provides the criterion to be applied. Is the subject matter the apparatus or part of the apparatus employed in carrying on the activities of the business". In Benson v The Yard Arm Club Ltd the company claimed plant and machinery allowances on an old ship which was adapted for use as a floating restaurant. The capital allowance claim was refused. The ship was the structure within which the restaurant trade was carried on rather than apparatus with which it was carried on. In the Court of Appeal, Lord Justice Templeman said that he could see no distinction between a restaurant on the Thames and a fish and chip shop in Bethnal Green. Both act as premises in which the trade is carried on'.
The Revenue's Capital Allowances Manual then continues: 'In another Court of Appeal judgment Lord Justice Shaw said "a characteristic of plant appears to be that it is an adjunct to the carrying on of a business and not the essential site or core of the business itself". In the third Court of Appeal judgment, Lord Justice Templeman said "if and only if land, premises or structures in addition to their primary purpose perform the function of plant in that they are the means by which a trading operation is carried out … the land, premises or structures are treated as plant". Later on, he made it clear that premises only become plant if they function as plant.
'Note that the functional test is not whether an asset has a function. All business assets have a function. The functional test is whether the asset functions as apparatus used in carrying on the activities of the business. For example an asset that functions as the business premises is not plant. It is not apparatus used in carrying on the activities of the business.'
What is treated as an industrial building comes under section 274, Capital Allowances Act 2001: 'Trades and undertakings which are "qualifying trades"', and under Table B, Item 10 'Docks. A dock undertaking. A dock includes - (a) any harbour, and (b) any wharf, pier, jetty or other works in or at which vessels can ship or unship merchandise or passengers, other than a pier or jetty primarily used for recreation'. Then paragraph CA32232 of the Capital Allowances Manual explains further: 'The definition of dock undertaking is not intended to be restrictive. All it is intended to exclude are structures like Southend Pier which are used for entertainment. Under the definition, a structure is a dock if it is possible for vessels to ship or unship merchandise or passengers at it. It does not need to be used that way in practice.
'Marinas normally qualify as dock undertakings because they usually consist of harbours where vessels can ship or unship merchandise or passengers.'
It therefore appears the idea of claiming for just industrial buildings allowances on the marina units will have to be accepted. - N.K.
The question as to whether an asset constitutes plant or machinery was one which was fairly regularly put before the courts. In order to preserve the status quo, Schedule AA1 was inserted into the Capital Allowances Act 1990. That Schedule was riddled with circular logic and other ambiguities and has been successfully transformed into the much clearer sections 21 to 24, Capital Allowances Act 2001. However, as it appears that the expenditure was subject to the 1990 rules, this response will concentrate on that legislation.
Schedule AA1 is applied by listing all the aspects to a building (Table 1) and all the structures (Table 2) that the Inland Revenue wished to treat as falling outside the rules for plant and machinery allowances. These items were shown in Column 1 of the respective tables. However, where case law had already determined that certain equipment could be treated as plant or machinery, an exception was made - these exceptions are shown in Column 2.
As the marina units are not buildings or parts of buildings, only Table 2 is relevant. A quick perusal of Column 1 will show that it is very widely drafted and includes 'any dock' (item E), any 'sea wall' (item F) and 'any structure not within any other item in this column' (item G). Further, the term 'dock' is extended to include 'any harbour, wharf, pier, marina or jetty' (Note 1).
Some of the exceptions in Column 2 appear to indicate that the marina units should be excepted (in particular item 3 ('expenditure on the provision of any jetty or similar structure')), but the issue is not without doubt; even the exception for jetties seems to be restricted to those 'provided mainly to carry machinery or plant' - something that does not appear to be the case here.
However, the reference to industrial buildings appears to be a red herring. Note 2 to the Table states that (subject to some modifications that are of no relevance here) an industrial structure (that is capable of qualifying for an industrial buildings allowance) is not to fall within the catch-all provision of 'any other structure' at item G. The note does not make the unit an industrial building.
Further, and more importantly, it should be argued that the marina unit falls outside the scope of Table 2. Using the legal principle of eiusdem generis, the meaning of each item in a list should be coloured by the other members of the list. So the extended meaning of 'dock' which includes 'harbour, wharf, pier, marina (and) jetty' would suggest that any similar item (natural or artificial) will be excluded from the definition of plant and machinery. However, it can be argued that the list suggests the item must be fixed to the ground to fall within Table 2. The marina units here are both floating and flexible and, arguably, fall outside the Table.
Whilst item G might be a sticking point, it should be highlighted that that provision only affects 'structures' rather than 'other assets'. It should therefore be argued that the floating marina units are no more structures than motor cars and therefore are not caught by that provision.
In 'Shipmate's' case, the eventual outcome is likely to depend on the presentation of the facts as much as the underlying law. This is particularly important if the case is to be determined by the Commissioners. 'Shipmate' should obtain detailed plans and photographs of the marina and obtain the relevant brochures from the manufacturers. The specification of the Walcon System 2000 is available on the Internet (www.walconmarine.com/products/sys2000/sys2000.htm). That refers to a 'pontoon system' which, it can be argued, is distinguishable from a structure. It also shows the flexibility of the system compared with the fixed structures anticipated by Table 2.
Whilst the matter is not free from doubt, it is considered that 'Shipmate' has a good case which might find favour with the Commissioners. However, if the Inspector offers a compromise it might prove mutually beneficial for that to be accepted. - Kalonymous.
Extract from reply by 'Bear':
Table 2 of Schedule AA1 to the Capital Allowances Act 1990 has resurfaced in section 22 or elsewhere in the Capital Allowances Act 2001. Item 5 in List B of section 22 excludes from plant and machinery 'a dock, harbour, wharf, pier, marina or jetty or any other structure in or at which vessels may be kept, or merchandise or passengers may be shipped or unshipped'. List B relates to excluded structures and other assets but the expression 'structure' means only a fixed structure of any kind.
Accordingly the Inspector's attention should be directed to the paramount interpretive force of the adjective 'fixed' that has to be applied to each and every item specified in List B.
