Tax advisers are often asked by clients for a list of items which qualify for tax relief and are often disappointed when one is not forthcoming. That is not, I hasten to add, because tax advisers don’t want to help clients but because the UK tax system does not really work like that.

For instance, the main rule about deductible expenses is written in negative terms. It says that expenditure which is not wholly and exclusively incurred for the purposes of the trade is not allowable, but it does not actually say what is allowed.

Similarly, the rules for capital allowances give relief for plant and machinery but do not (with some exceptions) specify what plant and machinery actually is. This does give advisers scope to run inventive arguments.

For example, a few years ago a court decided that a 1776 painting by Sir Joshua Reynolds was an item of plant and machinery for the purposes of the business of a stately home.

A tax tribunal has recently looked at another of these left field arguments. The taxpayer company argued that it was entitled to a tax write off for the entire cost of 615 tractors, trailers and similar items – with a total cost of £33m. This was on the basis of an obscure rule which allowed relief for the cost of replacing ‘implements, utensils and articles’. So, was a tractor a utensil?

The case is fascinating because the judge reviewed the history of the words which first appeared in the Income Tax Act 1842. He also reviewed the case law on the subject, going back to an 1880 decision included in the very first volume of published tax case decisions.

In that case the Caledonian Railway Company was able to obtain a deduction for the renewal of railway carriages. Counsel for the taxpayer argued that if relief was available for the cost of replacing railway carriages why shouldn’t the cost of replacing tractors also be allowable?

Inventive as that argument was the tribunal decided that tax law and practice had not stood still. Relief for capital expenditure was now given through a comprehensive system of capital allowances and that had effectively superseded the old rules. In practice the renewals rule was just for small items which were written off because they were not substantial enough to be capitalised.

So, in the end the taxpayer could not persuade the tribunal that a tractor was a utensil, but full marks for trying. After all it is only by testing the legislation in court that the true meaning of particular words can be established. 

About the author

Andrew Hubbard is a tax consultant and partner at RSM