First Tier Tribunal Decision – Capital Allowances tax case regarding the construction of Quay Walls
The First Tier Tribunal (FTT) has published its decision on the case of The Mersey Docks and Harbour Company Limited (Mersey Docks) V HMRC.
It concluded that the expenditure incurred on the construction of the quay wall in this instance did qualify as plant and machinery allowances (PMA’s).
Background
Mersey Docks is a major UK port operator, overseeing several prominent docks and harbours within the Merseyside region. As a critical player in the logistics and transportation sectors, the company handles large volumes of cargo and plays a vital role in international trade. The legal conflict arose when Mersey Docks claimed PMA’s in the periods ending 31 March 2015 to 31 March 2018 in respect of expenditure of £57,134,538 incurred on the construction of a quay wall at a new deep-water container terminal at the Port of Liverpool, which HMRC subsequently disputed.
Mersey Docks Position
Mersey Docks argued that the expenditure incurred on the quay wall satisfied the conditions imposed by section 11 (4)(a) of the Capital Allowances Act 2001 (CAA 2001) which is a section that sets out the general rules as to the availability of PMA’s. The general rule is that expenditure is qualifying as capital expenditure on the provision of plant and machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure. Although section 22 of the CAA 2001 considers the construction of a quay wall to be structural, Mersey Docks argued that section 23 (S23) of the CAA 2001 provides that expenditure on items in list C are unaffected by section 22 and therefore qualify as PMA’s.
Section 23 CAA 2001 – List C
- Item 1 – Machinery (including devices for providing motive power)
- Item 22 – The alteration of land for the purpose only of installing plant or machinery
- Item 24 – The provision of any jetty or similar structure provided mainly to carry plant or machinery
They argued that the Quay Wall falls within these 3 items in list C and would therefore qualify as PMA’s and satisfy the conditions imposed by section 11.
FTT agreed that the Quay Wall expenditure was that of installing machinery (STS Cranes), on the basis that without the Quay Wall the machinery cannot be said to have been provided for purposes of the trade. Item 1 of S23 list C “saved” the expenditure despite the fact that the other items (22 and 24) were not satisfied.
FTT Concluded:
- Quay Wall does constitute a distinct asset for purposes of the relevant provisions of CAA 2001
- Expenditure was on the provision of plant and machinery as section 11 (4)(a) CAA 2001
- Expenditure is saved by item 1 of List C in section 23 CAA 2001
Lovell Consulting’s View
It is important to appoint a capital allowance specialist when undertaking complicated projects like this as there may be expenditure that could potentially qualify for PMA’s even if it is not immediately obvious. Lovell Consulting personnel have the experience and knowledge of construction techniques and capital allowance legislation to accurately distinguish what expenditure is plant and machinery.
