Bestway (Holdings) Ltd v Luff (Inspector of Taxes): ChD 4 Mar 1998

The taxpayer company operated a wholesale cash and carry business from a number of self-service supermarkets. The stores sold groceries, household goods, tobacco, confectionery and various kinds of alcohol. Although the buildings were not open to the public the customers who were mainly retail traders and caterers had access to most parts of the store except for a bonded warehouse and were able physically to remove the goods they wanted to buy from the shelves. The premises operated much like a retail supermarket. Goods were paid for at a checkout and most customers removed their purchases in their own transport. The company contended that its use of the stores fell within both s.7(1)(f) and s.7(1)(e) of the Capital Allowances Act 1968 as extended by s.7(2).
Held: The warehouse had been used as a wholesale cash and carry supermarket and was not an industrial building for capital allowance purposes. The term ‘storage’ in s.18(1)(f) (and by extension in s.18(2)) is to be given a very limited meaning. The court analysed what is meant by ‘a trade which consists in the storage’ of qualifying goods and materials by examining what he refers to as the statutory context of the phrase in terms of nine propositions: (3-8) ‘(3) A building may be in use for the purposes of a trade which qualifies it for allowances though it is in use at the same time (and indeed more intensively) for another non-qualifying trade. The use of a building for dual purposes, one qualifying and one not, may qualify the building for allowances so long as the use for the qualifying purpose is not small or insignificant and such that it could not reasonably be brought within the Act: see Saxone, Lilley and Skinner (Holdings) Ltd. v. Commissioners of Inland Revenue 44 TC 122, at 140 (‘Saxone’).
(4) A building in use for a purpose which does not of itself qualify it for allowances under s7(1)(e) or (f), may nonetheless qualify if the use is ancillary to a use which does qualify: see Sarsfield v. Dixons Group plc [1997] STC 283, at 298. Thus a building may be in use for the purposes of a trade consisting in a ‘mill, factory or other similar premises’ or of a trade carried on of the manufacture or processing of goods or materials, if the building is used for the storage of goods or raw materials to be used in, or of the product of, that trade.
(5) The conditions which s 7(1)(e) and (f) require to be complied with are strict: the use is to be of a building (and not a part or parts of a building) and the trade is to consist in (and not merely involve or include) the specified activity. The strictness in respect of both elements is, however, relaxed by subsequent provisions. Section 87(4) provides that a part of a building may constitute an industrial building if the statutory conditions are satisfied in respect of that part. Section 7(2) provides that, if part only of the trade carried on satisfies the statutory conditions, a building or part of a building in use for that part of the trade may qualify as an industrial building. I shall later in this judgment have to consider what constitutes a part of a trade.
(6) The extended ambit of s 7(1) (to which I have referred to in (4) above) and the relaxations (to which I have referred to in (5) above) are reflected in s 7(4). This subsection is designed to disqualify from entitlement to allowances buildings used for the purposes there specified (which include a showroom or shop). The draftsman recognised that it was necessary to spell out that the disqualification extended to buildings or parts of buildings used for any of these specified purposes or for any purpose ancillary to these purposes.
(7) Section 7(1)(f) in terms strictly limits use which qualifies thereunder for allowances to use for a trade which does not merely involve or include storage, but which consists in storage of the specified goods. Storage must be the (and not merely a) constituent of the trade. But s 7(2) relaxes this restriction and provides that, where storage is not the trade carried on, but is part of the trade carried on, a building or part of a building used for this purpose qualifies for the allowances.
(8) Whilst s 7(4) expressly disqualifies from entitlement to allowances a building or part of a building used for the trade of a retail shop or showroom (and accordingly a retail supermarket) and for storage ancillary to such use, it is common ground that (perhaps because they were not yet thought of in 1945) there is no such disqualification of a building or part of a building used for the trade of a wholesale supermarket or use ancillary to such trade. Accordingly if and so far as a building is in use for the purpose of storage of the specified goods and such use is part of the trade of a wholesale supermarket, by virtue of s 7(2) the building may attract the allowances.’
Lightman J concluded: ‘The authorities make clear that there may be ‘storage’ where
goods are kept or held for a limited period and indeed for shorter periods than the 6-8 week period during which Bestway’s goods are in the building. In Saxone the shoes were held to be stored in a warehouse though they remained there for 10-13 weeks or less. In Crusabridge Investments Ltd. v. Casings International Ltd. 54 TC 246 (‘Crusabridge’) a building was held to qualify: (a) under s 7(1)(f)(ii) because tyres were ‘stored’ though often for no more than 7 days awaiting removal for processing (i.e. remoulding) by remoulders; and (b) under s 7(1)(f)(iii) because the processed (i.e. remoulded) tyres still owned by the re-moulder were stored there pending delivery to a purchaser. But the length of time during which goods are kept or held can only be one, and not the decisive factor or the factor of first importance, in determining whether they are stored: the determining factor must be the purpose for which the goods are kept or held. If goods are delivered for safe keeping to a depository (e.g. a bank providing a safe deposit), so long as the goods remain in the possession of the depository they may be described, as ‘stored’; but this would not be the apt description of goods handed over in the course of his business to a repairer or pawnbroker.
In this case what is critical is the nature of the enterprise intended to be carried on and actually carried on by Bestway at the buildings and the role played by the stock in that enterprise. For a building is only used for storage if the purpose of keeping goods there is their storage as an end in itself: there is no such use for storage if the goods are kept there for some other purpose: consider Kay v. Burrows and Others [1931] AC 454. All the stock in the present case is kept in the buildings, not for storage, but for sale. No goods are reserved or withheld for future use: they are all likewise available for sale and intended to be sold as soon as the turnover allows. For practical reasons only part of the stock can be made physically available for self-service by customers; but that does not alter the fact that the back-up stock is intended to be made immediately available as soon as required to meet demand. In short, as it seems to me, ‘storage’ in s 7(1)(f) means keeping in storage as a purpose and end in itself, and does not extend to such storage as is merely a necessary and transitory incident of the conduct of the business of a wholesale supermarket. The goods enter the buildings upon their final journey to the customers. The 6-8 weeks of stock at any time in the buildings may be likened to stock on an extension to the open shelves or on a conveyor belt to the open shelves. Far from being kept in reserve, the stock is in the process or in the course of being made available to purchasers at the buildings.
It is submitted by Bestway that this conclusion is inconsistent with the decision in Crusabridge. The decision in Crusabridge may be explained on its own facts, namely that there was in that case a finding that the collection and storage of tyres was ‘an essential part’ of the business: see pages 248C-249G. But in any event I do not think that that decision should stand in the way of what is clearly the correct answer in this case.’


Lightman J


Times 04-Mar-1998, Gazette 01-Apr-1998, (1998) 70 TC 512, [1998] STC 357


Capital Allowances Act 1990 18


England and Wales


CitedKay v Burrows HL 1931
The House considered whether premises (the greater part of which was used for the storage of rags awaiting processing, sorting or subsequent despatch) fell within the proviso to s.3(1) which excluded premises ‘primarily occupied and used [for the] . .
CitedSaxone Lilley and Skinner (Holdings) Ltd v Commissioner of Inland Revenue HL 1967
The taxpayer company was the parent company of a group of subsidiaries, one of which traded as the manufacturer and retailer of shoes. The others either manufactured or sold shoes. The company built a warehouse which was let to a warehousing . .

Cited by:

CitedRevenue and Customs v Maco Door and Window Hardware (Uk) Ltd ChD 19-Jul-2006
The Revenue sought to disallow for industrial buildings allowance sums expended on warehouse premises which were to be used to store window products imported for use in other manufacturing processes.
Held: The Revenue’s appeal succeeded. ‘The . .
CitedMaco Door and Window Hardware (UK) Ltd v Revenue and Customs HL 30-Jul-2008
The House was asked whether a warehouse used to store purchases made by the company from its parent company in Austria, was an ‘industrial building or structure’. It was agreed that the facility was used for the storage of materials for use in later . .
CitedIceland Foods Ltd v Berry (Valuation Officer) SC 7-Mar-2018
Air System plant excluded from Rating value
The court was asked whether the services provided by a specialised air handling system, used in connection with refrigerated merchandise in the appellant’s retail store, are ‘manufacturing operations or trade processes’ for rating purposes.
Lists of cited by and citing cases may be incomplete.

Corporation Tax

Updated: 10 May 2022; Ref: scu.78370