Tribunal allows capital allowances claim for expenditure on construction of a quay wall at the Port of Liverpool 

In The Mersey Docks and Harbour Company Ltd v HMRC [2024] UKFTT 1163 (TC), the First-tier Tribunal (FTT) allowed the company's claim for capital allowances in respect of expenditure incurred on the construction of a quay wall at a new deep-water container terminal at the Port of Liverpool.

Background

The Mersey Docks and Harbour Company Ltd (Mersey Docks) was the operator of the Port of Liverpool. It developed a new deep-water container terminal at the port between 2013 and 2017.

Mersey Docks and HMRC agreed the tax treatment of all expenditure except expenditure incurred in respect of a quay wall. In relation to this expenditure, Mersey Docks submitted claims for capital allowances in the periods ending 31 March 2015 to 31 March 2018, on the construction expenditure of £57,134,538. Mersey Docks argued that the quay wall served a functional purpose integral to its trade and therefore qualified as 'plant' under the Capital Allowances Act 2001 (CAA).

HMRC, considered that the quay wall was a building or structure and therefore excluded from capital allowances under sections 21 and 22, CAA, and issued closure notices and consequential amendments accordingly.

Mersey Docks appealed to the FTT.  

The parties agreed that in order to determine the appeal the following issues had to be decided by the FTT:

(1) does the quay wall constitute a distinct asset for the purposes of the relevant provisions of the CAA, or does it form part of a larger whole. 

(2) assuming the quay wall should be regarded as a distinct asset, was the relevant expenditure, in principle, on the provision of plant or machinery, within the meaning of section 11(4)(a), CAA; and 

(3) if so, is the relevant expenditure saved by item 1 (machinery not within any other item in the list); item 22 (the alteration of land for the purpose only of installing plant or machinery); and item 24 (the provision of any jetty or similar structure provided mainly to carry plant or machinery), in List C in section 23, CAA, it being common ground that the expenditure on the quay wall was, on its face, excluded from the scope of capital allowances (item 5 in List B in section 22, CAA).  

FTT decision 

The appeal was allowed. 

On issue (1), the FTT held that, having considered the evidence, relevant legal principles and the specific circumstances and facts, the quay wall was a separate item and therefore it constituted a distinct asset for the purposes of the relevant provisions of the CAA. The  functions of the quay wall are to allow the berthing and mooring of vessels and to support the cranes that load and offload containers.

With regard to issue (2), the FTT held that the quay wall expenditure was on the provision of plant and machinery, within the meaning of section 11(4)(a), CAA, as it fell on the 'plant' side of the line dividing the two. This took into account the FTT's finding that, in the circumstances, it was appropriate to describe the quay wall as apparatus rather than premises. Every part of the quay wall played an essential role in manoeuvring large vessels into a position where loading and unloading could take place.

On issue (3), the FTT considered whether the expenditure on the quay wall fell within the relevant items in List C in section 23, CAA, which would enable Mersey Docks to claim capital allowances. 

The FTT held that item 1 applied and concluded that the expenditure on the quay wall was expenditure on the installation of machinery, being the cranes. Without installation on the quay wall, the machinery could not be said to have been provided for the purposes of the trade. 

Although it was not necessary, the FTT said that items 22 and 24 did not apply. Item 22 did not apply because the installation of machinery was not the only purpose of the alteration of the land as the quay wall was also to provide mooring for ships. Item 24 did not apply because the wall was not a jetty, or similar structure. 

Comment 

Although this decision is fact specific, it does provide some helpful guidance on how the FTT is likely to approach the analysis of claims for capital allowances and, in particular, the meaning of plant and machinery. It also demonstrates how capital allowances can be successfully claimed on expenditure that does not obviously qualify for such allowances. Given the sums involved, HMRC may seek permission to appeal to the Upper Tribunal.

As an aside, during the hearing, HMRC made an application to withdraw its agreement to paragraph 6 of the Statement of Agreed Facts (paragraph 6 stated that there was no dispute between the parties as to the relevant tax treatment of certain cranes). The FTT refused HMRC's application as it would, in its view, be prejudicial to the proceedings and unfair to Mersey Docks to allow HMRC to withdraw its agreement to this fact. 

The decision can be viewed here.