[2024] UKUT 232 (LC)

During the course of running his business Mr Waters had cause to hire or lease Sage financial and management software, catering equipment and a generator. In the year ending 31 March 2015 these items amounted to expenditure of £15,806. Mr Davies treated this expenditure as a working expense as this approach accorded with reality and any incoming tenant would expect to continue the arrangement. Mr Cox on the other hand preferred to reflect equipment hire in his tenant’s capital, reflecting the equipment in the £500,000 that he had allowed for the AVD market value of non-rateable equipment that an incoming tenant would need to provide to achieve the FMT. Mr Davies criticised this approach as it caused what he considered to be a legitimate business expense to disappear from the valuation.

It seems to me that businesses routinely hire equipment. This might relate to something that is required from time to time such as a portable generator or an item where a subscription model is appropriate such as accounting software. The sums involved at the farm are relatively modest and Mr Cox acknowledged that were he to adopt Mr Davies’s Valuation Tribunal approach to non-rateable assets and depreciation it would reduce the assessment by rateable value £1,050. In relation to the generator Mr Cox said that it should properly form part of the landlord’s chattels and was therefore part of the hereditament on offer to the hypothetical tenant. I do not have enough information about the generator to judge whether he is correct but the sums expended appear to be in the range £1,000 to £2,000 per annum which if excluded will not make a material difference to the valuation. I prefer Mr Davies’s point of view, there is no reason to conclude that the hypothetical tenant would behave in a different way to the actual tenant, and I therefore include the expenditure in the working expenses.

A corollary of including these items in the working expenses is that it is necessary to consider whether the depreciation figure should change. Both experts adopted £50,000, but it is unclear how Mr Davies arrived at this amount. Mr Cox took the value of the non-rateable assets required to achieve the FMT to be £500,000 and adopted a 10 year, straight line write down. He contended that with the hired items included in the working expenses the depreciation would be less and the figure in the actual accounts should be used instead. I agree with this approach.