The Revenue has changed its mind on the application of industrial buildings allowances (IBAs) to storage trades, following the High Court decision in Bestway (Holdings) Ltd v Luff. In order to qualify for IBAs a building or structure must be in use for the purposes of a qualifying trade. The qualifying trade does not need to be the whole of the trade carried on; it can be part of the trade. The Revenue has revised its interpretation in two respects.
Firstly, before Bestway (Holdings) Ltd v Luff, the Revenue took the view that anything done in the course of a trade was a part of the trade for this purpose, and hence where a building or structure was used for the storage of goods or materials as part of a manufacturing process, it would, generally, qualify for IBAs. Following the Bestway decision, the activities in question do not need to be self-contained, but must be a significant, separate and identifiable part of the trade carried on.
Secondly, subject to a number of conditions, a building or structure in use for the purposes of ‘a trade which consists in the storage of goods or materials’ will qualify for IBAs. The Revenue now considers that the determining factor in deciding whether there is a trade of storage is the purpose for which the goods are kept or held. It will now only be accepted that a building is used for a trade of storage if the purpose of keeping goods there is because their storage is an end in itself. Storage which is merely a necessary and transitory incident of the conduct of the business is not sufficient.
The new interpretation will apply to chargeable periods ending after 31 December 1999. So, if businesses are claiming IBAs, and relying on either the ‘part of a trade’ qualification or on there being a trade of storage, their IBAs may be denied for periods ending after that date.
The main impact is likely to be on wholesale trades where the Revenue previously accepted that there was a qualifying part trade of storage of goods or materials which would be used in the manufacture of other goods or materials or subjected to a further process. The example given by the Revenue of the sort of business that may be affected is a builders merchant. Previously it may have been accepted that a building in use for the purpose of the trade of storing building materials that are to be used in the manufacture of other goods or materials would qualify for IBAs. Such storage by a builders merchant may no longer qualify. However, each case will have to be considered on its own facts.
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