Cases - Wimpy International Ltd v Warland, and Associated Restaurants Ltd v Warland

Record details

Name
Wimpy International Ltd v Warland, and Associated Restaurants Ltd v Warland
Date
[1988]
Citation
61 TC 51
Legislation

Finance Act 1971

Keywords
Capital allowances - plant and machinery - apparatus used for purpose of a business - improvements to premises where business carried on - premises test - whether entitled to plant and machinery allowances for replacement of shop fronts, floors, light fittings and decorative items - Finance Act 1971, s. 41
Summary

Both Wimpy and Associated Restaurants improved and modernised their restaurants. They claimed plant and machinery allowances on items such as replacement shop fronts, floor and wall tiles, murals, lighting, water tanks, staircases and raised floors. The Special Commissioners followed the Scottish and Newcastle decision and allowed such things as murals, decorative brickwork and wall panels, but disallowed the rest. The companies appealed to the High Court and then the House of Lords. The Special Commissioners' decision was upheld apart from one item - the Wimpy light fittings.

In his judgment, Hoffman J said that there were three tests, all of which could be called 'functional', to be considered when deciding whether an item was plant. These tests are:

  1. Is the item stock in trade?
  2. Is the item the business premises or part of the business premises (known as 'the premises test')?
  3. Is the item used for carrying on the business (the 'business use test')?

The 'business use test' is basically the same as the functional test.

The fact that an item passes the business use test is not enough to make it plant. If the business use is as stock in trade - that is, if the answer to question 1 above is 'yes' - then the item is not plant. Furthermore, it is not sufficient that the asset is used in the business - it must be employed in carrying on the business.

Hoffman J also said that an item used for carrying on the business is not plant if the business use is as the premises (or part of the premises) or place in which the business is conducted - the 'premises test'. That is, if the answer to question 2 above is 'yes', then the item is not plant. He made it clear that the degree to which the premises are purpose-built does not matter - they are the premises, and therefore are not the plant.

Hoffman J was not using 'part of the premises' here to mean the same as in a determination of whether an item has become part of the realty for the purposes of the law of real property, or a fixture for the purposes of the law of landlord and tenant. He suggested four general factors to be considered in deciding whether an item is part of the premises:

  • Does the item appear visually to retain a separate identity?
  • What degree of permanence has it been attached to the building?
  • To what extent is the structure complete without it?
  • To what extent is it intended to be permanent?
  • Is it likely to be replaced within a short period?

These are questions of fact and degree. They are not absolute hurdles, each of which must be surmounted.