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A test of the function test in a highly regulated and sophisticated asset

Conceptually, eligibility for plant and machinery allowances is straightforward. An asset used in carrying on the trade qualifies as plant: something which is the setting in which the trade is carried on does not qualify.


Anybody who has had to deal with this distinction in practice knows that it is anything but straightforward. Partly, this is because the facts in every case are different, but it is also because the legislation and case law has at times struggled to deal with changes in technology.


As the judge in this appeal (UrencoChemplants ltd and another v HMRC [2022] UKUT 22 (TCC)) put it: the intention of the most recent change in the legislation in 1994 was to draw a line in the sand between buildings and structures on the one hand and plant on the other, but sands shift, not only because issues will arise which were not specifically dealt with at the time the line was drawn but also assets such as those in this appeal were not contemplated at the time.


Here the dispute was on £192 million of expenditure on a facility to process and make safe uranium by-products in the nuclear industry and a copy of our previous article on the previous First-tier Tribunal (FTT) decision can be found here.


FTT found that much of the expenditure fell on the buildings side of the line and so rejected substantial parts of the capital allowance claim. On appeal, the Upper tribunal (UT) found several errors of law in the way that the FTT had approached the relevant test, in particular whether or not the disputed items played a function in the company’s trade. It did not reach a conclusion itself on eligibility but remitted the appeal back to the FTT to make additional findings of fact based on the correct legal tests.


The key UT findings were:

  1. FTT erred in law in its application of the functionality test in determining whether the "Disputed Items" were plant or machinery.

  2. FTT did not err in law in deciding whether expenditure was “on the provision of” plant or machinery, save in its decision as to the walls and slab in the Vaporisation Facility.

  3. FTT erred in law in deciding that section 21 applied to prevent all of the Disputed Items from being eligible for plant and machinery allowances.

  4. FTT did not err in law in deciding that none of Items 1, 4 or 22 of List C in section 23 would apply to save expenditure otherwise within section 21.

Although this decision does not bring finality to any party, it is none the less useful for its painstaking discussion of the correct legal tests to be applied, and in particular for the comments about the impossibility of legislating once and for all for a hard and fast distinction about what is and is not plant. This will always be an area for legitimate disputes.


Significant in this decision is that the claim for stairs, gantries and inspection platforms to the plant remained ineligible. Also, is the narrow application of the exclusions contained in List C and the notable absence for expenditure 'on the provision of' contained in items (1) to (4) and others.


If you have any questions, please do not hesitate to contact me.




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