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HMRC has publicised that it has been vindicated at both the First Tier and now the Upper Tier Tribunals, in refusing Industrial Buildings Allowance (IBAs). (Next Distribution Ltd. & Others v HMRC [2014] UKUT 0227 (TCC))

While IBAs were abolished some years ago, at a time when the relief was available the retailer Next (under Next and Paige Groups respectively) had attempted to claim some £19million in expenditure on two premises it used for logistics - the taxpayer claimed that the buildings were involved in subjecting goods to a process, that the goods were stored there preparatory to the goods’ being subjected to a process (breaking down bulk shipping consignments into smaller parcels) and/or were being used to store goods on their arrival to the UK from overseas.

The tribunal held that, while the buildings were (of course) used to store goods, the goods themselves were not subjected to sufficient a process , etc., and that the goods had “arrived” to the UK long before they ended up in the taxpayer’s warehouses, which was many miles inland from delivery. The case was long in the reporting and there is much detail. Many readers will recall how tortuous was the IBAs legislation and its subsequent interpretation by the courts.

The decision of the FTT is at Next Distribution Ltd. & Others v HMRC [2012] UKFTT 405 (TC)

The taxpayer appealed against the First-Tier Tribunal’s decision, but it was upheld by the Upper Tribunal – although the reasoning changed a little, and HMRC’s case was not approved on all points.

The Upper Tribunal’s decision is at Next Distribution Ltd. & Others v HMRC [2014] UKUT 0227 (TCC)

HMRC has been quick to publicise its victory in this latest turn and seems intent to cast the taxpayer in a poor light, with Jim Harra, HMRC’s Director General of Business Tax quoted as saying,

“This case shows that, when any business – large or small – tries to claim capital allowances beyond their scope, HMRC will challenge it, including through the courts if necessary.”

HMRC’s press release also asserts that this decision “safeguards about £2.8 million of revenue”.

Whlie the taxpayer hardly needs TW to speak in its defence, we think it appropriate to question the manner in which HMRC has reported this case. The language is not dissimilar to that reserved for “artificial” schemes which are perceived to have little economic basis other than to reduce tax. Simply put, the taxpayer constructed two large buildings – at substantial cost – in which some fairly complex operations were undertaken – a “genuine” economic activity. The taxpayer seems to have held a quite reasonable belief that it was entitled to tax relief on a good part of that expenditure. The tribunals – both of them, to be fair – have upheld HMRC’s view that relief was not available.

While HMRC is of course right to publicise the limit of IBAs, it is questionable whether the tone of its report serves an aim in the public interest, or effectively tries to dissuade taxpayers from making what one might loosely term “reasonably believed” tax claims in respect of “genuine economic activities”.