Mark Shaw v The Commissioners for HMRC

Introduction

1. This is an appeal by the appellant, Mark Shaw, in his capacity as nominated member of TAL CPT Land Development Partnership LLP (“TAL”) against the decision of the First-tier Tribunal (“FTT”) (Judge Philip Gillett and Member Jane Shillaker) released on 26 April 2019 (the “Decision”).

2. The FTT dismissed TAL’s appeal against the following closure notices and amendments to TAL’s partnership statement: Year Description Date of Issue Amount (£) 2004-05 Closure notice and amendment 3 Dec 2015 658,846 2005-06 Partnership discovery assessment 19 Nov 2009 2,555,820 2006-07 Closure notice and amendment 3 Dec 2015 10,315,324

3. The figures shown above represent the amount of writing down allowances and balancing allowances (both of which are Industrial Building Allowances (“IBAs”) claimed and disallowed in the partnership computation of allowable losses as a consequence of HMRC’s decisions.

4. TAL claimed the allowances in question in respect of accounting periods ended 31 March 2005 to 31 March 2007 on the basis that although the buildings concerned were not being used at the time of their acquisition by TAL, the previous owner having ceased to use them following the closure of its business at the site where the buildings stood, TAL nevertheless intended to bring the buildings back into use by finding suitable tenants to occupy them. Accordingly, TAL contended that it should be entitled to the allowances on the basis that the buildings were not to be regarded as ceasing to have been used because they were “temporarily out of use” within s 285 of the Capital Allowances Act 2001 (“CAA 2001”) up to the point that TAL decided to cease their efforts to use the buildings and sell them.

5. The respondent (“HMRC”) disallowed TAL’s claims on the basis that the buildings in respect of which the allowances were claimed did not meet the definition of “industrial buildings” in s 271 CAA 2001. In particular, HMRC contended that the buildings were not “temporarily out of use” within s 285 CAA 2001, at any time during TAL’s period of ownership because a period of actual use is required at both ends of a period of temporary disuse. HMRC contend that if, as was the case here, the building never comes back into actual use, then the period during which it was not being used cannot be considered to be “temporary”.

6. The FTT concluded that the buildings ceased permanently to be used as industrial buildings when they stopped being used by the previous owner. Therefore, the FTT held that at the time of their acquisition by TAL, the buildings had ceased to be used as industrial buildings with the consequence that TAL was not entitled to claim allowances in respect of them. This was on the basis that the absence of reuse meant that the disuse of the buildings could not have been temporary. Accordingly, the FTT concluded that TAL had no entitlement to claim allowances in respect of the buildings because they were not industrial buildings at any time during TAL’s period of ownership.

7. The FTT granted TAL permission to appeal against the Decision to the Upper Tribunal on 27 September 2019. The only issue before us is whether the FTT erred in its conclusion that the buildings in question were “temporarily out of use” during the material times and were thus deemed to be “industrial buildings” for the purposes of CAA 2001. The Facts

8. The FTT made detailed findings of fact regarding the successive periods of ownership and development of the site on which the buildings which were the subject of the appeal were constructed and the use of the buildings during the material times. Neither party is challenging those findings. For the purposes of this appeal the following short summary will suffice.

9. References to numbered paragraphs in square parentheses, unless stated otherwise, are references to paragraphs in the Decision.

10. The land on which the buildings which are the subject of this appeal were constructed (“the Site”) is situated between Glasgow and Edinburgh. The Site was situated in a business and distribution park which was designated as an enterprise zone ([16] and [17]).

11. In 1991 the UK subsidiary of a Taiwanese company involved in the production of cathode ray television tubes (“CPT Ltd”) purchased a long leasehold interest in the Site. CPT Ltd’s plan for the Site was to develop four large production buildings, over four phases. The building work for phase one commenced in 1996 and ended in 1998. Phase one was the construction of one of the large production buildings together with an office/canteen building and a range of ancillary buildings providing support services (together the “Buildings”) ([18] to [21]).

12. In October 1997 CPT Ltd started manufacturing cathode ray picture tubes at the Site, using all of the Buildings. However, CPT Ltd subsequently halted development at the Site and ceased its activities there due to commercial difficulties. During CPT Ltd’s period of ownership, the Buildings were industrial buildings within the meaning of s 271 CAA 2001. The expenditure incurred by CPT Ltd was qualifying expenditure for the purposes of CAA 2001. In or around January 2003 the Buildings fell into temporary disuse within s 285 CAA 2001. Following CPT Ltd’s sale of the Site (as described below) there were residual capital allowances of approximately £14 million ([24] to [25]).

13. On 4 February 2004 TAL agreed to purchase CPT Ltd’s interest in the Site. The purchase agreement included an undertaking that two of the Buildings (the office building and the production building) would be brought out of temporary disuse and back into use within 3 years of acquiring the Site. TAL also agree to indemnify CPT Ltd for up to £7 million for any future tax liabilities it could incur if it failed to bring those buildings back into use. The purchase was completed on 2 March 2004, approximately 13 months after the Buildings had fallen into (temporary) disuse while in the ownership of CPT Ltd. TAL then held the relevant interest in the Buildings for the purposes of s 286 CAA 2001 ([32] to [34]).

14. At the time of the acquisition, TAL was not aware of the possibility that it might claim IBAs in respect of their expenditure on the Site and these allowances formed no part of the business plan which they prepared in order to secure loan finance for the purchase ([35]).

15. From the date of the purchase, TAL instructed agents to market the Site to attract potential tenants for the Buildings and from 2 May 2004 extensive active marketing took place. Those efforts ultimately failed. TAL resolved to cease its efforts to use some of the Buildings in November 2005 and those buildings were sold in March 2006. TAL continued to market the remaining Buildings but in October 2006, TAL resolved to carry out a new development which required the demolition of the rest of the Buildings. Those Buildings were sold in April 2007 before the demolition and new development had commenced ([42] to [69]).