There is trouble in store

A High Court decision issued on 19 July (see link below) could mean industrial owners have to pay millions of pounds in extra taxes as the Industrial Building Allowance (IBA) was not allowed on storage facilities.

Maco Door & Window Hardware (UK) Ltd had premises in Sittingbourne in Kent and they were the sole UK distributors of products for UPVC windows and doors which were manufactured by an Austrian parent company. The particular product and market in the UK required up to 6-weeks in storage if the company were to properly serve the needs of the    wholesale customers who distributed products in smaller quantities to manufacturers.  There was also a need for Maco to hold onto old stock for much longer to fulfil a 10-year guarantee to its customers.

The issue was whether or not the considerable area used for storage was carried out as part of Maco’s trade under section 18 (2) of the Capital Allowances Act 1990. The parties agreed that goods imported by Maco were stored in its warehouse, the Revenue argued that Maco’s trade was not storage but the buying and selling of products wholesale, the storage was just a means to this end.

Mr Justice Patten upheld the appeal by the Revenue and said that what is critical is the nature of the enterprise. It was intended that the storage was carried out to support the company’s wholesale trading operation and not as a trading or commercial activity in itself.

We feel that this probably underlines the original concept and application of IBA’s, Accountants should not be swayed by the volume of storage space but look to the nature of the underlying business. The same would apply to Chartered Valuation Surveying where advice given to clients and accountants on the purchase or sale of such buildings.

• For the text of the decision click the link below 
http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2006/1832.html&query=Maco+Door&method=any

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