CA32213 - IBA: Qualifying trade: Meaning of subjection to a process

The question whether goods are subjected to a process is a question of fact. The line you should follow is that goods are subjected to a process where:

• there is a substantial measure of uniformity of treatment, or
• there is a continuous and regular action or succession of actions taking place or carried on in a definite manner.

If you have problems with the question whether goods are being subjected to a process you may find it helpful to visit the premises and look at what happens.

The expression subjection of goods to a process was considered in the following tax cases:

Kilmarnock Equitable Co-operative Society Ltd. v CIR 42TC675. Here Lord Cameron said the word ‘process’ in its ordinary connotation seems to me to mean no more than the application of a method of manufacture or adaptation of goods or materials towards a particular use, purpose, or end, while ‘to subject’ means no more than to treat in some manner or other. Kimarnock business included selling coal in paper bags, both retail and wholesale. It constructed a building in which it screened and packed the coal and claimed IBA on the grounds that goods were subjected to a process in it. The company’s claim succeeded.

Buckingham v Securitas Properties Ltd. 53TC292. In that case the subjection of goods to a process was held to be:

• a continuous and regular action or succession of actions taking place or carried on in a definite manner; or
• a continuous (natural or artificial) operation or series of operations.

Securitas Properties claimed IBA on a building in which they stored coins and notes and made up wage packets because they claimed that the repetitious nature of sorting the notes and coins and filling the wage packets was a process. Their IBA claim was refused on the grounds that although the coins and notes were subjected to a process they were held as currency and so were not goods or materials.

Vibroplant Ltd. v Holland 54TC658. In his judgment Dillon J stressed the need for substantial uniformity of treatment of each item for there to be a process. Vibroplant owned plant and machinery, which it hired out. It claimed IBA on the buildings in which it stored the plant when it was not hired out and carried on repair and maintenance work. The claim was refused on the grounds that each item of equipment was treated on an individual basis: the uniformity of treatment needed for a process was missing. Legislation has been introduced to overturn this. Repair and maintenance is now a qualifying trade apart from the maintenance and repair of goods by a person who uses those goods in a trade that is not a qualifying trade CA32220.

Girobank plc v Clarke 70TC387. This case showed that subjection of goods to a process was not limited to processes of an industrial character and that it was not necessary for the goods or materials to be altered for there to be a process but there should be a substantial measure of uniformity of treatment. Girobank constructed a building in which it processed cheques and other documents. It claimed IBA on the building. The Special Commissioners, the High Court and the Court of Appeal refused its IBA claim. The cheques and other documents were not goods or materials. In this case the phrase subjection to a process was interpreted widely. In the High Court Lindsay J said that subjecting goods to a process was not limited to processes of an industrial character in that it is not necessary that something is made by the process or that the operations had to be carried out wholly or mainly by machine. He also said that a process did not need to alter the goods or materials subjected to it in any way. It was enough that the goods were cleaned, sorted or packaged but that there should be a substantial measure of uniformity of treatment.

Bestway (Holdings) Ltd. v Luff 70TC512. This case showed that not every treatment of goods or materials constitutes the subjection of goods to a process. There should be a uniform treatment or system of treatment of some real significance. The Bestway group operated cash and carry warehouses where it sold goods wholesale. IBA was claimed on the warehouses on the grounds that the unpacking, checking, labelling, repackaging and electronic scanning of goods was the subjection of goods to a process. The claim was refused. Bestway’s activities were mere preliminaries to sale, which were of no substantial significance.

None of the cases above gave a complete definition of the expression but they all give useful guidance.