Case Law – Mersey Docks & Harbour Company v HMRC
HMRC continue to raise enquiries and to disallow items of plant that could be used for a claimant’s trade.
The First-Tier Tribunal (FTT) were asked to consider whether plant & machinery allowances (PMAs) were available in respect of expenditure on the construction of a quay wall at the Port of Liverpool as shown in the youtube video Liverpool2 Construction. The appeal by the taxpayer was successful.
The quantum of claim was £57.1million submitted in year-end period 31 March 2015 to 2018 for the development of a new deep water container terminal for larger vessels.
HMRC argued that PMAs were excluded by virtue of structure assets and works under section 22 Capital Allowances Act 2001 (CAA 2001) under list B item 5 for ‘a dock, harbour, wharf, pier, marina or jetty or any other structure in or at which vessels may be kept…”.
The burden of proof rests with the taxpayer, Mersey Docks to demonstrate that HMRC is wrong to disallow the expenditure and argued that the expenditure falls under sections 23 CAA 2001 which provides that certain expenditure under list C is unaffected by section 22, namely:
- Item 1 – Machinery not within any other item in this list
- 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
In reaching a decision, the FTT considered the principles raised in two cases, the most recent being Gunfleet Sands Ltd v HMRC (ADD Link) and whether the quay wall should be regarded as having a distinct identity or whether it should be regarded as part of a larger container transition area (CTA). Secondly, IRC v Barclay Curle & Co (ADD Link) which looked at the construction of a dry dock and whether the quay wall was apparatus with which the trade was undertaken or the premises where the trade was carried on.
In summary, the FTT favoured the tax payer stating that the quay wall “expenditure is expenditure on installing machinery, namely the STS cranes’.
Veritas Advisory’s view on the decision is that this case further demonstrates the importance of understanding the context of the expenditure in relation to the qualifying trade of the claimant, as well as how the items of plant & machinery are installed which can often lead to significantly increased claims.
Note that Veritas Advisory are aware of more enquiries being raised by HMRC into capital allowance claims and it is therefore, vital that the taxpayer seeks specialist capital allowances advice to ensure submitted claims are fully auditable, with the entitlement basis completed and fully justified, when submitted.