In this case (The Mersey Docks and Harbour Company Ltd v Revenue and Customs Commissioners [2024]), the First Tier Tribunal (FTT) held that expenditure on a new quay wall, which costs c.£57m to construct, did qualify for capital allowances, overturning an HM Revenue & Customs' (HMRC) determination that it did not.
Between 2013 and 2017 The Mersey Docks and Harbour Company Ltd (MDHC), which operates the Port of Liverpool, developed Liverpool2, a new deep-water container terminal at the Port of Liverpool. HMRC agreed that various other aspects of the development costs qualified for capital allowances but did not agree that such allowances could be claimed in respect of expenditure on a quay wall. The case involved the application of sections 22 and 23 of the Capital Allowances Act 2001. HMRC took the view that the expenditure on the quay wall was not expenditure on the provision of plant and machinery or if it was, that it did not qualify for capital allowances because section 22 specifically excluded such a claim and section 23, which negates the provisions of section 22, could not 'save' the expenditure.
Section 22 provides that capital allowances cannot be claimed on 'A dock, harbour, wharf, pier, marina or jetty or any other structure in or at which vessels may be kept, or merchandise or passengers may be shipped or unshipped'.
Section 23 provides that expenditure on machinery can qualify for capital allowances.
The quay wall had several functions including support for the legs of the ship to shore cranes (STS Cranes), accommodating the rails for the STS Cranes and spreading the concentrated load of the wheels of the STS Cranes. HMRC had accepted that the STS Cranes constituted machinery and that capital allowances could be claimed in respect of expenditure on them. The FTT carried out a detailed analysis of the purpose and function of the quay wall as part of the development and determined that expenditure on the quay wall, which had to be incurred before the STS Cranes could be provided, was expenditure on installing machinery, namely the STS Cranes themselves.
The FTT ultimately concluded that section 23 did apply to override the provisions of section 22 and capital allowances claims could therefore be made in respect of the expenditure on the quay wall.
This decision is very fact specific but is another example of how capital allowances can be claimed on expenditure that it may not at first appear obvious qualifies for such allowances.
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