No, Yes, No, Yes, NO! to IBAs on 'part' trade

House of Lords has overturned the previous Court of Appeal decision, thus denying Industrial Building Allowances to Maco Door and Window Hardware (UK) Ltd


In a 3:2 majority judgement Lords Hoffmann, Walker of Gestingthorpe and Neuberger of Abbotsbury found in favour of HM Revenue & Customs.

The majority view was that s.18(2) CAA1990 [now s.276 CAA2001] was simply clarifying and extending s.18(1) [now s.274(1) CAA2001] as to the understanding of composite trades. 

Lord Mance failed to convince his noble and learned friends that "the natural meaning of the language in s.18(2) to be that a part of a trade or undertaking is an element not itself a trade or undertaking."

Instead the majority opted in favour of Lord Walker's interpretation that "a part trade must be, not simply one of the activitities carried out in the course of a trade, but a viable section of a composite trade which would still be recognisable as a trade if separated from the composite whole.

Although not for Maco Doors, it is all abit academic in light of the phased abolition of IBAs and Agricultural Building Allowances, that will reduce from April 2008 and disappear altogether by April 2011.

If you or your clients operate businesses that may benefit from Industrial Building Allowances or have HMRC enquiries on the validity of your capital allowances, please contact E3 consulting.  We can support you or your accountants/tax advisers to ensure you are optimising the allowances and so not paying too much tax!

A recent HealthCheck requested by the accountants for a small manufacturing business yielded over £40,000 of additional and unexpected tax savings.  A significant windfall for the business!

By way of background:
Lord Justice Carnwath presided over the Court of Appeal's 2:1 majority decision (19/7/2007) to restore the Industrial Building Allowances (IBAs) for Maco Door & Window Hardware (UK) Ltd in respect of their part trade of storage.

Carnwarth LJ was critical of the artifical interpretation sought by HM Revenue & Customs of section 18 Capital Allowances Act 1990 (now s.274 CAA2001), stating "these formulations ...are glosses on the statutory words.  As such they are inconsistent with the ordinary reading adopted by Lord Reid.....each is open to more specific criticisms."


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