The Mersey Docks and Harbour Company Limited v HMRC: Capital Allowances implications of the Recent First Tier Tribunal Decision

Background

The Mersey Docks and Harbour Company Limited, a key player in the UK’s maritime infrastructure sector, sought to claim capital allowances on the construction expenditure of a quay wall at one of its ports. The company argued that the wall served a functional purpose integral to their trade, thereby qualifying as "plant" under the CAA 2001. HMRC contended that the wall was a building or structure excluded from allowances under Section 21 and Section 22 of the Act.

Key Legal Issues

1. Definition of Plant: The case centred on whether the quay wall could be classified as plant. The Tribunal relied on established legal principles, including the "functional test" derived from Yarmouth v France, to assess whether the wall was more than a structure.
2. Application of Exclusions: HMRC’s challenge was based on the exclusions under Sections 21 and 22 of the CAA 2001, which prohibit allowances for buildings or structures unless they meet specific criteria.
3. Functional Integration: The Tribunal examined whether the quay wall’s role in facilitating trade activities positioned it as plant, rather than a mere structural asset.

Tribunal Findings

The FTT concluded that the quay wall satisfied the criteria to be classified as plant, emphasising the following points:

• Trade-Specific Functionality: The quay wall’s design and construction were integral to the loading, unloading, and movement of goods - core activities of The Mersey Docks and Harbour Company Limited’s’ trade.
• Distinct from Land or Premises: Unlike conventional walls or structures, the quay wall was not merely a passive feature. Its functionality directly supported the operational needs of the port - particularly in relation to the Ship to Shore cranes.
• Legislative Context: The Tribunal noted that the CAA’s exclusions were not intended to deny allowances for infrastructure assets with a clear functional role in trade.

Implications for Taxpayers

This decision broadens the scope for classifying infrastructure assets as plant, providing significant opportunities to accelerate tax relief on expenditure that would otherwise have been eligible for Structures and Buildings allowances at 3% per annum. Key takeaways include:

• Enhanced Eligibility for Relief: Businesses with trade-specific assets embedded in infrastructure should review their capital allowances claims in light of this decision.
• Importance of Functional Evidence: Detailed analysis and evidence demonstrating an asset’s functional role in trade are essential to support claims.
• Revisiting Existing Claims: Taxpayers may benefit from reassessing prior expenditure on infrastructure to identify potential qualifying assets that could now be considered as plant.

Looking Ahead

The Mersey Docks and Harbour Company Limited ruling highlights the need for clarity and precision in the classification of infrastructure assets. For businesses in infrastructure, logistics, transport, and other sectors reliant on bespoke trade-specific structures, this decision underscores the importance of proactive capital allowances consultation and support.

Conclusion

The FTT’s decision represents a significant development in capital allowances law, offering a more nuanced interpretation of "plant" for infrastructure assets. Businesses should consider how best to leverage this precedent to review their tax positions while ensuring compliance with legislative requirements.

For tailored advice on capital allowances, our team of experts is ready to help you navigate these complexities and understand the benefits available to you.