This article examines if warehouses used for storing raw materials and finished goods for a manufacturing trade are eligible for industrial buildings allowance. In coming to our conclusion, we must look at relevant case law.

It is understood that the warehouse would qualify for Industrial buildings allowances.

For a building or structure to qualify for capital allowances, it must be used for the purposes of a trade carried on in a mill or factory. A mill or factory is generally taken to be where some manufacturing/processing occurs but we can look to case law to provide a further explanation.

Some case law that may help in the determination as to whether it is used as a mill/factory:

In Vibroplant Ltd v Holland (Inspector of Taxes) 54 TC 658, a factory was defined as "a place where goods are manufactured" and a mill was defined as a place "where goods are subjected to some processing in which machinery is used". This case held that a building used for the purposes of cleaning, servicing and repairing of equipment belonging to the taxpayer, whose trade consisted of the hiring of such equipment, was not similar to a mill or factory because nothing similar to manufacturing or processing was involved.

The essence of the treatment which was provided in the taxpayer's buildings as stated by the judge "is that it is individual for the particular defects or needs of a particular piece of plant; each item is treated individually (the precise nature of which depended on the extent of the damage suffered). By contrast... 'process' connotes a substantial measure of uniformity of treatment or system of treatment".

In Ellerker v Union Cold Storage 22 TC 195, a company owned and occupied a number of cold storage premises for the purpose of its trade. The majority of these premises were purely cold stores that kept meat and other commodities at a certain temperature but a number were also used for the manufacture of ice. The companies were assessed to tax on the basis that they were not "mills, factories, or other similar premises". The High Court judge held that the premises in question were "mills, factories or other similar premises". Macnaghten, J in considering the definition of factory and mill stated, " I take it that a factory is a building used for the manufacture of goods and equipped with machinery, and that the word is generally understood in that sense. It is a building where goods are made. The meaning of the word 'mill' is also, I think, plain enough. A mill is a building where goods are subjected to treatment or processing of some sort and machinery is used for that purpose." The buildings were equipped with machinery for the purpose of its trade and also the goods were treated or processed by means of this machinery. Hence the buildings were classed as "mills, factories or other similar premises".

While in this case, it is a warehouse, warehouses that store raw materials and finished goods will qualify as industrial buildings even if they are separate to the factory premises, the argument being that they are in use for the purposes of the manufacturing trade.

This however was examined in a UK case.

In the UK case of Saxone, Lilley and Skinner (Holdings) Ltd v CIR 44 TC 122, a company had two aspects to its business i.e. the manufacture of shoes and sale of shoes. The company claimed industrial buildings allowances on a warehouse used for storing shoes. It was held that industrial buildings allowances are available to a building where:

• a building is used for qualifying and non-qualifying purposes, and
• the whole premises are used for both purposes and
• none of the uses of the building are specifically excluded from IBA.

On the contrary, in the case of Sarsfield (Inspector of Taxes) v Dixons Group, it was held that a warehouse was not an industrial building as the use of the warehouse was ancillary to the purposes of retail shops held by the taxpayer.

A retail shop is defined in s268(7)(a) TCA 1997 as "any premises of a similar character where retail trade or business (including repair work) is carried on". A premises that sells goods to trade customers only and not to the general public is commonly agreed not to be a retail shop.

Therefore, in this case, as the trade is manufacturing and the warehouse is used for storing raw material and finished goods for the manufacturing trade the warehouse would be eligible for industrial buildings allowance.

Conclusion

Warehouses used for storing raw materials and finished goods for a manufacturing trade can qualify for industrial buildings allowance, provided they meet certain criteria. Based on the case law discussed, it is evident that the warehouse must be used for the purposes of the manufacturing trade and not merely ancillary to other non-qualifying purposes such as retail shops. It is essential for businesses to carefully assess their warehouse usage and consult relevant case law to determine their eligibility for industrial buildings allowance.

If you require assistance or advice in relation to any of the above matters, please contact our team on 053 91 000 00 or email [email protected]. 

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.