Case: The Mersey Docks and Harbour Company Limited ('Mersey Docks') v The Commissioners for His Majesty’s Revenue and Customs ('HMRC')
Reference: [2024] UKFTT 001163 (TC)
Subject: Appeal against denial of capital allowances for expenditure on a new quay wall at the Port of Liverpool
Decision: Appeal allowed
Key Themes and Findings
Mersey Docks appealed a closure notice from HMRC denying capital allowances for a £57 million quay wall at the Port of Liverpool. The Tribunal considered whether the quay wall qualified as "plant and machinery" under the Capital Allowances Act ('CAA') 2001.
The case hinged on interpreting relevant legislation and applying precedents, notably with references to cases such as Barclay Curle, Cole Brothers and Gunfleet Sands over the definition of "plant". On the relevant facts the quay wall was a distinct functioning asset on the 'provision of' an accepted item of machinery. It was therefore not an excluded structure for the purpose of CAA 2001 s22, Item 5. HMRC's attempt to withdraw a previously agreed fact was also rejected.
The Quay Wall was a Distinct Asset
The Tribunal determined that the Quay Wall constitutes a distinct asset for capital allowance purposes, separate from the Container Transition Area (CTA). While acknowledging physical integration and shared operational purpose, the Tribunal found the Quay Wall's functions (mooring and crane support) sufficiently distinct from the CTA's (storage and sorting).
This distinction was crucial for assessing the eligibility of expenditure for capital allowances.
“Having considered the evidence adduced, the relevant legal principles, and the specific circumstances and facts as we have found them, we have concluded that the CTA and the Quay Wall are separate items for the purposes of this appeal. It is therefore our finding on the facts that the Quay Wall constitutes a distinct asset for the purposes of the relevant provisions of the CAA 2001.” (Paragraph 66)
The Quay Wall was Plant or Machinery
The Tribunal found the Quay Wall expenditure qualified as "on the provision of plant or machinery" under section 11(4)(a) CAA 2001.
They drew a direct analogy to the landmark Barclay Curle case, where a dry dock was deemed plant. The Quay Wall, like the dry dock, enabled a specific function (supporting the STS Cranes for loading/unloading) essential for Mersey Docks' trade.
The Tribunal rejected HMRC's argument that the Quay Wall's land retention function made it premises. They emphasized the integral role of the Quay Wall in facilitating the use of the STS Cranes, which HMRC accepted as machinery.
“It seems to us that every part of the Quay Wall plays an essential part in getting large vessels into a position where loading and unloading can take place, and that it is wrong to regard any part of the Quay Wall as a mere setting or part of the premises in which this operation takes place.” (Paragraph 81)
"In our view, the Quay Wall Expenditure is expenditure on installing the machinery, namely the STS Cranes, on the basis that without installation the machinery cannot be said to have been provided for the purposes of the trade.” (Paragraph 88)
Exceptions to Statutory Exclusions
Despite falling under the initial exclusion for docks in section 22 CAA 2001, the Tribunal found the Quay Wall expenditure was "saved" by Item 1 of List C: "Machinery (including devices for providing motive power) not within any other item in this list."
The Tribunal deemed the Quay Wall expenditure essential for installing the STS Cranes (machinery), thus making it eligible for capital allowances.
They also analysed, but did not find applicable, the exceptions related to land alteration and jetty structures.
“We have therefore concluded that the expenditure is “saved” by item 1 of List C in section 23 CAA 2001.” (Paragraph 90)
Important Facts
The case involved a new deep-water container terminal ("Liverpool2") to accommodate larger "Post-Panamax" vessels.
The Quay Wall was a complex structure with piled foundations, coping beams, tiebacks, and a concrete surface.
STS Cranes, resting on rails embedded in the Quay Wall, were essential for loading/unloading containers from the ships.
The dispute focused on £57,134,538 expenditure incurred on the Quay Wall construction.
Conclusion
This decision potentially sets a precedent for capital allowance claims on similar port infrastructure projects where structures are intrinsically linked to the functionality of machinery.
The case highlights the importance of careful asset identification and detailed factual analysis when applying capital allowance legislation, particularly in complex construction projects.