Daphne v Shaw (HMIT)
England & Wales
9 November 1926
The Appellant, a solicitor, claimed a deduction under Rules 6 and 7 of the Rules applicable to Cases I and II of Schedule D regarding wear and tear and obsolescence of books forming part of his law library.
Held
that the books were not machinery or plant within the meaning of the said Rules.
BUT……
In the UK, books will, in principle, qualify as a plant unless they have such a short shelf-life that they are an ordinary trading expense.
Authority was previously found for this in the HMRC manuals: ‘Books are plant if they satisfy the two-year test’. The current capital allowances manual is silent on the matter.
In practice, HMRC allows a deduction for new additions of and supplements to technical books already owned, for replacements of versions that have become obsolete, for technical periodicals and periodical parts of law reports, as well as for the cost of binding supplements and periodicals.
It is normally just the initial cost of setting up the library in the first place that will be claimed as a plant. Even in these cases, HMRC will only insist that the cost of the books should be capitalised where the amount of expenditure involved is considerable.
Concerning employees, HMRC guidance to inspectors is that they ‘only spend time in establishing whether an allowance is due as an expenses deduction or as a capital allowance in worthwhile cases’.
It was not always the case that books could qualify as a plant.
In the case of Daphne v Shaw, Rowlatt J appears to have reached the wrong conclusion. Certainly, his view has not stood the test of time.
He ruled:
‘I cannot bring myself to say that the books of a lawyer, whether a barrister or a solicitor or, I am sorry to say, a Judge … are “plant”. It is impossible to define what is meant by “plant and machinery”. It conjures up before the mind something clear in the outline, at any rate; it means apparatus, alive or dead, stationary or movable, to achieve the operations which a person wants to achieve in his vocation. But the books which he consults, on his shelves, and which he does not use as “implements”, really, in the direct sense of the word, at all, I cannot believe are included in it.’
This judgment was questioned but not overruled in the Arthur Sanderson case, in which Cross J felt constrained by the Rowlatt precedent. Cross clearly had difficulty with Rowlatt’s conclusion:
‘If a barrister has to buy a new edition of a textbook to help him to write his opinions, I cannot see as a matter of principle why the book should not be regarded as a tool of his trade just as much as the typewriter on which his opinions are typed.’
It was not until Munby v Furlong, however, that the issue of whether books are considered as a plant was comprehensively reviewed and the earlier judgment overturned.
In the course of the judgment, Lord Denning referred to the words of Lord Donovan (in a case not reported) in which he stated:
‘If you ask me for the ordinary meaning of the word "plant", I would not say that a horse and cart were plant, I would not call the partitions in a building separating a room "plant", but still, the cases show that they are plant for tax purposes.’
Lord Denning sitting in the Court of Appeal, emphasised that:
‘I do not think “plant” should be confined to things which are used physically. It seems to me that, on principle, it extends to the intellectual storehouse that a barrister or a solicitor or any other professional man has in the course of carrying on his profession. The difficulty has arisen because the Legislature when it extended this provision to professions, did not make clear the scope of the word “plant” in that context. It seems to me, in the context of a profession, the provision of “plant” should be so interpreted that a lawyer’s books – his set of law reports and his textbooks – are “plant”.’
In the same case, Sir John Pennycuick agreed with him:
‘[Plant] seems to me quite plainly to cover books purchased by a barrister for the purpose of his profession. Those books do indeed represent apparatus used by him for carrying on his profession, and that, to my mind, is the end of the case.’
The normal starting point when ascertaining the meaning of the word plant is the employers’ liability case of Yarmouth v France (1887) 19 QBD 647. There, Lord Justice Lindley held that:
‘… it includes whatever apparatus is used by a businessman for carrying on his business – not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business.’
The Munby v Furlong case overturned 50 years of precedent and established once and for all that books and potentially other assets used in a less physical way can indeed qualify as a plant.
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