The Supreme Court has unanimously reversed decisions of the Upper Tribunal and Court of Appeal and has ruled that an air handling system (“AHS”) used for cooling air was part of a trade process carried out by refrigerated food retailer, Iceland, and was therefore exempt for the purposes of calculating business rates.
Business rates are charged on most commercial premises and are assigned a rateable value by the Valuation Office, which determines the level of rates payable in respect of the premises.
The general rule is that plant and machinery has no effect on the value of a hereditament for rating purposes. However, the Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (the “Regulations”) set out in a schedule to the Regulations the only classes of plant and machinery which are taken into account for rating purposes.
In Iceland Foods Ltd v Berry (Valuation Officer), the parties agreed that the AHS fell within Class 2 of the Schedule. However, Iceland's appeal concerned the construction of the proviso to Class 2, which excludes for rating purposes plant and machinery used in connection with services mainly or exclusively as part of manufacturing operations or trade processes. Iceland argued their use of the AHS brought the AHS within this proviso.
The Upper Tribunal and Court of Appeal construed the proviso narrowly and considered that it was implied by the word “process” that a transition from one state to another was required to fall within the proviso. They found that freezing food did not satisfy this definition.
The Supreme Court disagreed and gave the word “process” a wider construction, and held the AHS was used as part of a trade process operated by Iceland. On that basis, the Supreme Court held the AHS should be disregarded for the calculation of rateable value, meaning the rateable value of the premises was reduced.
We will have to wait and see if this decision leads to other businesses revisiting the rateable values assigned to their properties, where plant and machinery is used in connection with their operations.