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HMRC internal manual

Business Income Manual

Capital/revenue divide: intangible assets: purchase of tipping sites by a waste disposal company

Other than in the case where the trade comprises or includes property dealing, the costs of acquiring an interest in land will likely be on capital account - the land being a fixed capital asset of the trade. It does not matter that the land is thereafter ‘consumed’ by trading operations carried out on it.

In the case of Rolfe v Wimpey Waste Management Ltd [1989] 62TC399 the company acquired a number of freehold and leasehold landfill sites at prices related to the volume of waste which could be tipped. In addition to the cost of the freehold or leasehold the company incurred expenditure on planning permission, disposal licences, site offices, making or improving roads, erecting fences, preparing the landfill sites to accept the various types of waste, constructing a rail terminal, restoration of the sites when tipping ceased and investigating sites that proved useless for its operations. The average life of the sites from acquisition to final restoration was about seven years.

The company claimed that the costs were incurred on revenue account on the basis that it had acquired the land in order to use the airspace above it, what the company described as ‘consumable tipping space’. The amount claimed in the accounts reflected the amount of space ‘consumed’ in each particular year. Much of the lengthy decision by the Special Commissioner in favour of the taxpayer is taken up by accountancy evidence.

The Court of Appeal held, that:

  1. Expenditure to acquire an interest in land is prima facie capital expenditure.
  2. The asset acquired by the company was not airspace but the land or the interest in it. It was not like the stock of a builder because neither it nor any interest in it was disposed of to the customer. It was essentially the place where the company carried on its business.
  3. The bases upon which prices paid for sites and charged to customers for the disposal of waste on them were calculated did not affect the matter.
  4. The sites were used for a sufficiently long period to qualify as capital.

At page 437 Harman J explained that the airspace could not be divorced from the land over which it lay:

‘…it is quite plain that airspace is not something which even the most ingenious conveyancer of Lincoln’s Inn has ever dealt with as an item of property unrelated to the ground over which it lies.’

For guidance on expenditure incurred on the remediation of contaminated land see CIRD60000 onwards. For guidance on waste disposal site preparation and restoration expenditure see BIM67400 onwards.