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HMRC internal manual

Capital Allowances Manual

Plant and Machinery Allowances (PMA): meaning of plant and machinery: development of case law

Since there is no statutory definition of plant guidance about the meaning of plant has to be found in case law. The cases about the meaning of plant go back a long way. The first case in which the meaning of plant was considered was Yarmouth v France (1887) 19QBD647. It was not a tax case but was a case under the Employer’s Liability Act 1880. In that case Lindley LJ said that:

In its ordinary sense it (that is, plant) includes whatever apparatus is used by a businessman for carrying on his business - not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in the business.

So a condition that has to be satisfied for an asset to be plant in a business is that it is kept for permanent employment in that business. In the case of Hinton v Madden & Ireland Ltd. 38TC391, knives and lasts which had an average life of 3 years and which were used by a shoemaker were held to be plant. You should accept that an asset that has an expected life of two years or more (the 2 year test) is sufficiently durable to be plant.

*Yarmouth v France *made it clear that something that is not used for carrying on the business is not plant. It also made it clear that ‘plant’ excludes stock in trade. The final words of the quotation above also made it clear that the business premises are not plant because they are not goods or chattels employed in carrying on the business. Rather, they are the place in which the business is conducted.

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. 53TC67. In that case Buckley LJ 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 that 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, Templeman LJ 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.

You should find the Court of Appeal judgements in the *Yard Arm Club *case useful. One of them is mentioned above. In another Court of Appeal judgement Shaw LJ 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 judgement Templeman LJ 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.