The Court of Appeal (CA) has overturned the previous decision of the Upper Tribunal (UT) in the case of Revenue and Customs Commissioners v Altrad Services Ltd and another company [2024] to deny two taxpayers significant capital allowances resulting in increased corporation tax liabilities running to £millions.
The taxpayers entered into planning arrangements designed to enhance their entitlement to capital allowances on assets they already owned. In short, they sold the assets to a bank and the bank then leased them back to the taxpayers for three or four weeks. Thereafter, the bank sold the assets to the taxpayers.
Under an anomaly in the capital allowances legislation (which has since been amended), the taxpayers argued that they did not have to bring a disposal value into account for capital allowances purposes on their respective disposals (and so they retained all of the allowances they were already entitled to) and that they were entitled to claim allowances on the cost of the reacquisition of the said assets. This provided the taxpayers with a significant step up in expenditure qualifying for capital allowances whilst never really relinquishing ownership of the assets.
The First-tier Tribunal (FTT) found the planning to be devoid of business purpose and just effected to achieve a 'magical' uplift in qualifying expenditure for capital allowances purposes. HM Revenue & Customs (HMRC) argued that the planning was contrived and that as the taxpayers had not really ceased to own the relevant assets, no additional allowances should be capable of being claimed in respect of the ‘repurchase’ of them. The taxpayers lost in the FTT but were successful on appeal in the UT.
The CA restored the FTTs decision. Contrary to the UT, the CA took a holistic view of the transactions and concluded that viewed realistically, the taxpayers did not cease to own the assets when they sold them to the bank and that they would, throughout the planning steps, continue to have the uninterrupted beneficial use of the assets for the purposes of their trade. Accordingly, the intermediate steps that took place between the sale of the assets to the bank and their reacquisition had to be disregarded and the planning was determined to be ineffective.
Capital allowances continue to provide valuable tax relief for taxpayers and can give rise to considerable tax savings. HMRC do and will however continue to challenge what they consider to be artificial planning to try and enhance allowances for taxpayers.
If you require any advice in connection with capital allowances, please contact our tax specialists.
