Goodness. Who would have thought there was any more to know about Straitgate and its minerals' past?
ECC Quarries – which became part of Aggregate Industries in 1997, following an all-share takeover of Camas by Bardon – purchased Straitgate Farm in 1965 from Sir John Kennaway. The purchase was speculative; the land had no planning permission for the winning and working of minerals. Fifty-six years later, Aggregate Industries is still trying to win permission.
We’ve known that a planning application to quarry Straitgate was submitted in 1967 and refused following a Public Inquiry in 1968; details can be found here. What we didn’t know was that the costs related to that application were the subject of a High Court battle in the 1970s.
ECC Quarries’ case centred around:
Whether expenditure incurred by the Company in connection with applications for planning permission to extract sand and gravel from land owned or leased by the Company was to be disallowed in computing the Company’s income for corporation tax purposes on the ground that the expenditure was capital expenditure;
The company argued:
...expenses incurred by the Company in connection with the planning applications relating to Blackhill, Colaton Raleigh, Straitgate Farm… being £26,141… was of a revenue nature deductible in computing the Appellant’s profits for corporation tax… [and] that the expenditure did not create any asset.
HM Inspector of Taxes disagreed, and so did the High Court. ECC lost the case:
For the Crown it was contended that the expenditure was incurred to obtain raw materials over a long period and was therefore incurred not in earning profits but in order to make profits possible; that the acquisition of planning permission to work minerals was in the nature of the acquisition of a right or creation of a new asset; alternatively that it was an improvement of existing assets; thus the expenditure was capital and not revenue expenditure. The Special Commissioners held that the expenditure was capital. They considered that the correctness for tax purposes of the accountancy practice of debiting the costs of planning applications to revenue account depended on the correctness of their decision on the question of law.
Held, that the expenditure in connection with the planning applications was incurred for the purpose of securing a permanent alteration to the nature of the land which the Company owned or occupied; it was a lump sum and was intended to procure an enduring advantage static in nature in the sense that it was not the planning permission which would produce the profits but the subsequent operations of working and winning the minerals. The accountancy evidence was not sufficient to persuade the Court that the expenditure was of a revenue nature.
ECC Quarries Ltd v Watkis even became case law, and is now quoted by HMRC:
Expenditure that would have been capital had it been successful does not change its character merely because in the event it is abortive. ECC Quarries Ltd v Watkis [1975] 51TC153 was concerned with costs incurred in an unsuccessful planning application.
If the application had succeeded the expenditure would have been capital. In the event the application failed; no asset was acquired or modified (and the company did not rid itself of any disadvantageous asset).
Brightman J, in the face of unchallenged accountancy evidence, held that the abortive expenditure was capital.
So, not only could the mineral speculators not profit from the 20 million tonnes of sand and gravel resource first thought available at Straitgate – Aggregate Industries is now struggling to win permission to extract 5% of that number – but it turns out the expenses incurred in its failed attempt to secure permission were not even tax deductible.
