In Acorn Venture Ltd [2023] UKFTT 00995 (TC), the First-tier Tribunal (FTT) found that capital allowances could be claimed in respect of expenditure incurred by a company on the purchase of some (but not all) camping pods made available for school trips. 

Background

Acorn Venture Limited (the company) provides residential adventure holidays for school children from a number of different locations, mainly in the UK. In 2008, it purchased a site in the Brecon Beacons in South Wales, which provided sleeping accommodation in tents and Portakabins, and communal facilities in large buildings.

By 2015, the Portakabins had reached the end of their useful life and the company replaced them with 26 camping pods. The pods were delivered to the site fully constructed and were placed on the hardstanding area where the Portakabins had been, using a forklift truck. The pods rested by their own weight on a frame constructed of wood and breeze blocks, and were anchored to the ground to prevent damage from the wind.

Although all of the pods were the same size, and looked the same from the outside (apparently, similar to an upturned boat hull), they fell into two categories based on the internal fit-out:

• pods intended for children (basic pods). Each pod had five beds and the experience was described as broadly comparable to a tent, with the advantages of better protection from the weather and enhanced security (a lockable door); and 
• pods intended for teachers (teacher pods). Each pod had two beds, flushing toilets and washroom facilities and a small kitchen area. Given the gulf in quality of accommodation provided to the children and the teachers, I can only assume that this did not always go down well with the children. 

The company submitted its tax return for the period ended 30 September 2015 on the basis that the expenditure on the pods was expenditure on plant and machinery qualifying for capital allowances. It claimed the annual investment allowance (AIA), giving it 100% tax relief in the year in which the expenditure was incurred. HMRC opened an enquiry into the return and, after a lengthy period of correspondence, issued a closure notice denying the AIA claim. The company appealed against the closure notice to the FTT.

The issues

It was common ground that the expenditure on the pods was capital in nature, that it was incurred by the company for the purposes of its trade and that the pods were not the setting or premises from which the company operated (rather, they were assets used in providing the adventure holidays). That left the issues summarised below.

• Issue 1: Were the pods buildings with the result that a claim for capital allowances was excluded by s21(1), Capital Allowances Act 2001 (CAA 2001)? 
• Issue 2: If the pods were buildings, was the claim for capital allowances saved by item 21, List C, s23, CAA 2001? Section 23 disapplies s21, CAA 2001 where the expenditure falls within a type listed in the legislation. Item 21 of that list is: “moveable buildings intended to be moved in the course of the qualifying activity”.
• Issue 3: If the pods were not buildings, was a claim for capital allowances denied by s22(1), CAA 2001? Section 22(1) provides that expenditure on the provision of a structure is not expenditure on the provision of plant and machinery. ‘Structure’ is defined by s22(3) as follows: “a fixed structure of any kind, other than a building (as defined by section 21(3))”.

The FTT approached the issues in the order set out below.

• First, were the pods structures (Issue 3)?
• Second, were the pods buildings (Issue 1)?
• Third, if the pods were buildings, were the pods moveable (Issue 2)? 

It was accepted that the FTT may reach different conclusions with regard to the basic pods and the teacher pods, and so it proved to be. 

Were the pods structures?

The FTT found that all of the pods were structures in the ordinary sense of the word. However, as the basic pods were not fixed, they were not structures within the meaning of s22, CAA 2001. The same could not be said of the teacher pods due to the plumbing facilities: “To have been plumbed in required that the teacher pods be in a fixed and identified place where there was access to the unground [sic] drain and then attached in a way which had a degree of permanence”. Therefore, the tribunal concluded that the teacher pods were structures but the basic pods were not.

Were the pods buildings?

Although the FTT’s conclusion that the basic pods were not fixed structures strongly suggested that they were not buildings, that possibility could not be ruled out and so the FTT went on to consider Issue 1 – whether the pods were buildings – for both the basic pods and the teacher pods. In so doing, the taxpayer invited the FTT to consider the characteristics and functions of the pods, and made reference to HMRC’s guidance at Capital Allowances Manual, CA 90250 where HMRC states that an item that provides shelter may be “too small or insubstantial to be a building” (eg, a tool shed). 

The FTT concluded that the basic pods were not buildings. In addition to not being fixed to the ground, the basic pods provided only a crude place to sleep, not living accommodation, and in many respects were no different from a tent. Although the teacher pods were identical to the basic pods from the outside, they provided a significantly greater level of comfort (living accommodation) and were fixed to the ground. Therefore, the teacher pods were buildings.

As the basic pods were neither structures nor buildings, the company was not precluded from claiming capital allowances in respect of its expenditure on the basic pods. 

Were the teacher pods moveable buildings?

That left the teacher pods and Issue 2: as the teacher pods were buildings, were they “moveable buildings intended to be moved in the course of the qualifying activity”? In deciding Issue 2, the FTT had three factors to consider. 

First, were the teacher pods moveable? HMRC had argued that although the pods were physically moveable, the costs of doing so and the need to apply for planning permission meant that for practical purposes they could not be moved. The FTT rejected HMRC’s arguments, finding that the company had provided evidence to demonstrate that the teacher pods were moveable.

Second, at the time of making the claim for capital allowances, was it the company’s intention that the teacher pods would be moved? Having considered the available evidence, the FTT found that an intention to move the teacher pods was documented in summer 2019, but not earlier. This meant that capital allowances could be claimed at that point, but this was too late for the period ended 30 September 2015 and so the ability to claim AIA was lost. In other words, capital allowances at the rate of 100% could not be claimed for the expenditure for the year it was incurred, but a claim for capital allowances in the form of less generous writing down allowances was possible for later periods.

Third, was the movement in the course of and not only for the purposes of the qualifying activity? The FTT expressed relief that, given the conclusion it reached above, it did not need to determine this point. However, the FTT did say that, although it was not easy to determine a substantive difference between “in the course of” and “for the purposes of” a qualifying activity, it did consider that the company would have satisfied this test.

The teacher pods were excluded from capital allowances in respect of expenditure on plant and machinery and were not saved by item 21, List C, s23, CAA 2001 for the period ended 30 September 2015. 

Other points to note

There are two other interesting points to note from this case.

The first concerns the fact that the company could provide only limited documentary evidence in support of its intention to move the pods. Instead, it relied on the oral testimony of a director but, for HMRC, this should be taken “with a pinch of salt” where it could not be corroborated by documentary evidence. In coming to its conclusion on this point, the FTT accepted that it was reasonable for a small and “close-knit” business to not record such operational decisions. Therefore, the FTT was not prepared to “draw an inference that there was no intention to move the pods because there was no documentary evidence of such an intention”.

Second, HMRC had made a point of the pods being included as ‘land and buildings’ in the company’s accounts. The FTT accepted the company’s argument that the accounting classification had most likely been driven by the depreciation policy: as the company’s policy was to depreciate buildings over 25 years and camping equipment over five years, it was more appropriate for the pods to be classed as buildings. The FTT concluded that, although the label attached to the relevant class of asset was not irrelevant, it was not a significant factor in these circumstances.

Concluding comments

This case provides some useful pointers on the rules around buildings and structures and capital allowances. In particular, it will make interesting reading for anyone making a capital allowances claim which depends on there being an intention to move the building. At the relevant time, the company had considered moving the pods in the event that bookings were down and the pods could be better utilised at another site. However, for the FTT, this “contingent intention” of moving the pods fell short of an “actual intention” to move the pods, which was required in order to make a valid claim for capital allowances. 

Stephen Relf, Technical Manager, Tax, ICAEW

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