Q&A: capital allowances and eligibility

Croner VIP Tax Team

In this week’s Q&A, Alexander McCarthy, tax adviser at Croner VIP Tax Team, explains the capital allowance rules on plant and machinery for a container business

Q. My client runs a storage business that rents shipping containers as storage units. They are not fixed in place, and they are moved around and connected together if a client wants a larger storage area. They would also be open to the idea of allowing a client to take their rented container to their own premises for storage, though no one has done this currently. How can we argue that capital allowances will be available on the containers?

A. In order to claim capital allowances on an asset it must be plant or machinery. The shipping containers do not meet the definition of machinery, but they might meet the definition of plant.

There is no statutory definition of plant so we must take the tests and definition from case law.

Essentially as a starting point, this is summed up as follows:

• plant is apparatus;

• it includes ‘all goods and chattels’; and

• it must be kept ‘for permanent employment’ in the business.

The container would also be plant if it were explicitly mentioned in Capital Allowances Act 2001 (CAA 2001) section 23 and would be incapable of being plant if it is fixed in place as a building or structure under s21 or s22.

For your client’s trade the containers appear to be:

• used as apparatus for carrying on the business;

• goods, rather than trading stock of the business; and

• permanently employed in the business.

As they have a useful life of over two years, ownership will remain with the client even if they are rented out and moved to another location.

As the container in this case is capable of being moved, and is moved, as part of the business it should be possible to say that the container is not a fixed structure or building.

Although both storage equipment and moveable buildings are mentioned in s23 items 4 and 21 respectively it is unlikely that either can be relied on in this case.

HMRC may argue that the shipping container is the location of storage, but it is not the storage equipment, that would be the shelfs, boxes, etc, within the container.

HMRC may also argue that although they can be moved, for each contract with a client they will not be moved during that contract.

The recent case of Acorn Venture Ltd [2023] UKFTT 00995 (TC) at the First Tier Tribunal (FTT) illustrates this. In this instance the issue was whether glamping pods were considered as plant or buildings. The tribunal found that the pods in question, which housed teachers, were fully plumbed in and were fixed to the ground and were therefore considered to be buildings. However, a further 20 student pods, which were not plumbed in and could be moved, were not buildings, but were instead plant.

In your client’s scenario the containers are not fixed, they presumably just rest on their own weight and so could be considered to be like the children’s pods if they otherwise meet the definition of plant. As the court case is only in the FTT it is only persuasive rather than binding, so a firmer position cannot be taken.