The UK Supreme Court has this morning given an important judgment on the valuation of plant and machinery for business rates purposes.
Under the Plant and Machinery Regulations of 2000, service plant and machinery such as air conditioning is rateable, subject to a proviso that it is non-rateable if it is used mainly or exclusively in connection with “manufacturing operations or trade processes”.
Iceland Foods v Berry (VO) concerned the air handling system installed in an Iceland store in Liverpool. The air handling system, which operated 24 hours a day 7 days a week, was far more powerful than that found in other supermarkets, to cater for Iceland’s particular method of setting up and operating its stores. The air handling system was necessary to enable Iceland’s freezing and refrigerating cabinets to operate, and if their operation failed, the food contained within them would be ruined. The Upper Tribunal found that the system was used mainly or exclusively in connection with keeping Iceland’s frozen and refrigerated goods in their frozen or refrigerated conditions; it held, however, that keeping goods in an artificial condition was not a “manufacturing operation or trade process”, so that the proviso did not apply. The Court of Appeal agreed: it considered that the “manufacturing operations or trade processes” provision was a narrow exception to a general rule of rateability, and that the storage of refrigerated goods was the antithesis of a trade process, which should ordinarily involve some transition in the state of the subject matter (so that freezing a chicken could be a trade process, but keeping it frozen could not).
The Supreme Court has overturned the Court of Appeal and Upper Tribunal’s approach, taking a much wider view of the proviso. Lord Carnwath JSC, giving the single judgment, emphasised the following points:
a. He rejected as “impossible” the VO’s submission that the proviso was limited to productive classes of industry: both the words of the regulations and the legislative background material showed that the proviso was of general application to all types of hereditament, including those in retail or commercial contexts.
b. The Court of Appeal had been wrong to treat the proviso as a narrow exception from a general rule of rateability. Rather, the general rule is that plant and machinery is not rateable. The 2000 Regulations contain exceptions to that general rule. The proviso is thus an “exception to an exception”. The true dividing line is between plant which provides a service to a building, and plant which provides a service to the activities of the trader within that building. Where the latter is the main or exclusive purpose, the plant is in the nature of a “tool of the trade” and thus non-rateable.
c. There is nothing in the word “process”, nor in its use as part of a composite expression, which implies a transition or change. The term has a much wider meaning covering anything done to goods or materials. A “trade process” is simply a process (in that wide sense) carried out in the course of a trade. Iceland’s activities of keeping frozen or refrigerated goods in an artificial state fall within that definition.
The Supreme Court’s judgment confirms the proper approach to plant and machinery of all classes and in all hereditaments, and will require a significant recalibration in the way that plant and machinery is approached in practice. Many hereditaments which include plant and machinery as part of their RVs may, on the Supreme Court’s approach, have been over-valued.
Dan Kolinsky QC and Luke Wilcox appeared for Iceland. Tim Morshead QC and Zack Simons appeared for the VO.