The First-tier Tribunal (FTT) has allowed The Mersey Docks and Harbour Company Limited’s appeal in respect of its claim for plant and machinery allowances for expenditure incurred on the construction of a Quay Wall at the Port of Liverpool.
The case concerned £57 million incurred on the construction of a Quay Wall which formed part of its new deep-water container terminal at the port, as part of a wider project known as ‘Liverpool2’.
The first issue the FTT considered was whether the Quay Wall was a distinct asset or formed part of a larger whole with the other parts of the Liverpool2 project.
HMRC contended that the Quay Wall and the container transition area (CTA) (constructed in order to store containers, or load and unload them onto lorries) were functionally integrated and formed part of a larger installation directed towards the same purpose, so together should be viewed as a single asset.
The FTT disagreed, acknowledging that while the Quay Wall and the CTA both supported the overall purpose of the terminal (to load and unload containers), the operational function of the CTA was to store, organise, and move containers whereas the Quay Wall functioned to allow the berthing and mooring of vessels and to support the cranes that load and offload containers.
The FTT next considered whether expenditure incurred on the Quay Wall was on the provision of plant and machinery under s11 Capital Allowances Act (CAA) 2001.
The FTT rejected HMRC’s argument that the Quay Wall should be viewed as premises rather than plant, with the ordinary premises functions substantially outweighing any plant-type function, and held that the expenditure on the quay wall was on the provision of plant and machinery. It considered the functions of the quay wall and found that every element played an essential part in ensuring vessels are in position and able to load and unload cargo. It considered that the quay wall should be seen as the means (or plant) by which their operations are performed.
It was common ground between the parties that the Quay Wall expenditure was excluded from plant and machinery allowances as a structure by virtue of s22 CAA 2001 List B Item 5 applying. The FTT then considered whether the expenditure was saved by any of the items in List C at s23 CAA 2001.
The FTT held that the quay wall expenditure fell under Item 1 of List C (“Machinery (including devices for providing motive power) not within any other item in this list”) on the basis the expenditure was incurred on the provision of machinery (being the cranes), noting that cranes could not be said to be provided for the purposes of the trade without the installation facilitated by the Quay Wall.
The FTT rejected the alternative approaches submitted by the taxpayer that the Quay Wall expenditure fell within item 22 of List C (“The alteration of land for the purpose only of installing plant or machinery”) as the Quay Wall was also constructed for other purposes, not only for installing the cranes. It also held that the quay wall did not fall within item 24 of List C (“provision of any jetty or similar structure provided mainly to carry plant or machinery”) on the basis that under the ordinary meaning of ‘jetty’, it was not apt to describe the Quay Wall either as a jetty or a similar structure.
This decision will be of strong interest to taxpayers engaged in expenditure on large infrastructure projects. This decision comes off the back of taxpayer success in 2023 at the Supreme Court in SSE Generation.
This case, like other recent decisions such as Gunfleet Sands, again shows that the question as to whether expenditure is eligible for plant and machinery allowances is a fact-dependent exercise focusing on the functions of the asset in question (and not just its physical appearance).
We note that HMRC may seek to appeal the decision and taxpayers should wait and see if they do.
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