The roller coaster litigation of Maco Door and Window Hardware (UK) Ltd v Revenue and Customs [2008] has finally concluded with a 3-2 victory in the House of Lords for HMRC. The point in issue was whether the phrase 'a part of a trade' in the definition of an industrial building or structure in s18 of the Capital Allowances Act (CAA) 1990 referred to a trade that was itself part of a composite trade or whether the phrase referred to an activity that was a constituent activity of the overall trade but not itself a trade.
Facts
The facts of the case, briefly, were that Maco stored stock that it had purchased from its Austrian parent company in a warehouse and then sold the stock on to third parties. Maco claimed industrial building allowances (IBAs) in respect of its capital expenditure on the warehouse, on the basis that the warehouse qualified as an industrial building or structure because it was used:
'... for the purposes of a trade which consists in the storage of goods or materials which are to be used in the manufacture of other goods or materials' (s18 (1)(f)(i) CAA 1990).
Maco acknowledged that it did not have a trade of storage but relied on s18(2) CAA 1990, which provides:
'The provisions of subsection (1) above shall apply in relation to a part of a trade or undertaking as they apply in relation to a trade or undertaking except that where part only of a trade or undertaking complies with the conditions set out in subsection (1), a building or structure shall not by virtue of this subsection be an industrial building or structure unless it is in use for the purposes of that part of that trade or undertaking.'
Maco claimed that part of its trade was the storage of goods and materials that were to be used in the manufacture of other goods or materials. If the meaning of the phrase was as Maco contended, it was accepted that Maco would be entitled to IBAs. If the phrase had the meaning put on it by HMRC, no allowances would be available.
Outcome
The Special Commissioners found for Maco. However, Patten J reversed their decision in the High Court and the High Court decision was, in turn, reversed at the Court of Appeal, with a 2-1 victory for Maco. While it was acknowledged in the House of Lords that the expression 'a part of a trade' was capable of bearing different meanings according to the context, the fact was that despite compelling argument for coming to the other conclusion the majority in the House of Lords preferred the construction that the phrase 'part of a trade or undertaking' required the part, itself, to be a trade. It seems likely that a similar meaning would be applied by the courts to the phrase where it is used elsewhere in the legislation.
The decision of the House of Lords is consistent with HMRC's view of what constitutes 'part of a trade' in the context of s343 of the Income and Corporation Taxes Act 1988 (company reconstruction without a change of ownership) there being no definition of 'part of a trade' in that Act. HMRC interprets the phrase in the context of s343 as meaning a part of a company's trading activity that is capable of being a free-standing apparatus and making profits or losses in its own right. Had the decision in Maco gone the other way, then there might have been scope for taking a wide view of what constituted a part of the trade in other contexts, but in view of this decision such an argument would seem unlikely to succeed.
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