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HMRC internal manual

Capital Allowances Manual

Plant and Machinery Allowances (PMA): meaning of plant and machinery: Wimpy - the current state of the law on the meaning of plant

It was becoming clear that the ‘setting’ test was of limited application in deciding whether an item was plant. For example, the partitions in the *John Good *case, the window screens in the *Leeds Permanent case *and items like the tapestries, murals, prints and sculptures in the *Scottish and Newcastle case *were part of the setting but they qualified for capital allowances as plant.

In the cases of Wimpy International Ltd v Warland, Associated Restaurants Ltd. v Warland 61TC51 *Hoffman J set out the limitations of the ‘setting’ test. He said that the contrast between plant and setting was perfectly intelligible in the context of the J Lyons *case but that later cases had shown that an item which could be properly be described as being part of the setting could also be plant.

Both Wimpy and Associated Restaurants improved and modernised their restaurants. They claimed plant or machinery allowances on items like replacement shop fronts, floor and wall tiles, murals, lighting, water tanks, staircases and raised floors. The Special Commissioners followed the *Scottish and Newcastle *decision and allowed things like murals, decorative brickwork and wall panels but disallowed the rest apart from the water tanks. The companies appealed to the High Court and then the Court of Appeal. The Special Commissioners decision was upheld apart from one item - the Wimpy light fittings.

In his judgement Hoffman, J said that there were three tests, all of which can be called functional, to be considered in deciding whether an item was plant. These tests are:

  1. Is the item stock in trade?
  2. I the item the business premises or part of the business premises (the premises test)?
  3. Is the item used for carrying on the business (the business use test)?

The business use test is basically the same as the functional test CA21100.

The fact that an item passes the business use test is not enough to make it plant. If the business use is as stock in trade - that is if the answer to (1) above is yes, the item is not plant. Furthermore, it is not sufficient that the asset is used in the business, it must be employed in carrying on the business. For instance, general lighting failed this test in the Lyons case CA21110 and in Hunt v Henry Quick Ltd (TCL3328), *whereas lighting to create atmosphere and to attract customers was allowed in *Wimpy.

Hoffman, J also said that an item used for carrying on the business is not plant if the business use is as the premises (or part of the premises) or place on which the business is conducted - the ‘premises’ test. That is, if the answer to (2) above is yes the item is not plant. He made it clear that it does not matter how purpose-built the premises may be they are not plant because they are the premises.

Hoffman J was not using ‘part of the premises’ here to mean the same as whether the item has become part of the realty for the purposes of the law of real property or a fixture for the purposes of the law of landlord and tenant. He suggested four general factors to be considered in deciding whether an item is part of the premises:

  1. Does the item appear visually to retain a separate identity?
  2. With what degree of permanence has it been attached to the building?
  3. To what extent is the structure complete without it?
  4. To what extent is it intended to be permanent or alternatively is it likely to be replaced within a short period?

These are questions of fact and degree. They are not absolute hurdles each of which must be surmounted.