Judgment summary
This is an appeal by HMRC against a decision of the First-tier Tribunal (Tax Chamber) released on 23 December 2024, in which the FTT allowed an appeal by The Mersey Docks and Harbour Company Limited (MDHC) against HMRC's refusal of capital allowances on expenditure of £57,134,538 incurred constructing a quay wall as part of the Liverpool2 container terminal (1).
The FTT had held that the expenditure was on the provision of plant or machinery within section 11(4)(a) CAA 2001, and that although prima facie excluded by Item 5, List B, it was saved by Item 1, List C (1, 13).
HMRC appealed on two broad grounds, and MDHC cross-challenged aspects of the Decision by Respondent's Notice (2, 37-40). The Upper Tribunal (Mellor J and Judge Cannan) found several material errors of law in the FTT's reasoning, set aside the Decision, and remitted the appeal to a newly constituted FTT panel for reconsideration (160-161).
Background
MDHC operates the Port of Liverpool and is a harbour authority, levying pilotage, ships' dues and goods' dues, with income from cargo handling subject to corporation tax (15). Between 2013 and 2017 MDHC developed Liverpool2, a new deep-water container terminal designed to accommodate larger 'Post-Panamax' vessels following expansion of the Panama Canal in 2016 (16).
The terminal comprised several elements, including the Berthing Pocket, the Quay Wall and the Container Transition Area (17-24). The Quay Wall was a structure approximately 830m long (main section) with Outer and Inner Piling, a concrete slab, coping beams, bollards, fenders and crane rails to accommodate Ship-to-Shore Cranes (STS Cranes) (19-21). There were initially five STS Cranes, with three more added in 2020 (21).
The FTT found, among other things, that the Quay Wall's functions included providing access for Post-Panamax vessels, forming one side of the Berthing Pocket, providing the foundation for the STS Cranes, and retaining reclaimed land (26). The FTT found at [51] that the Quay Wall's primary purposes were to provide mooring and to support the STS Cranes, both being equally important and essential (27).
The FTT held that expenditure on the Quay Wall was expenditure on the provision of plant within section 11(4)(a) CAA 2001, drawing an analogy with the House of Lords decision in IRC v Barclay, Curle & Co Ltd [1969] 1 All ER 732 concerning a dry dock (29-32). It further held that the expenditure, although excluded under Item 5, List B, was saved by Item 1, List C, as expenditure on installing the STS Cranes (34).
Core dispute
The dispute concerned whether expenditure on the Quay Wall was capital expenditure 'on the provision of plant or machinery' within section 11(4)(a) CAA 2001, and if so, whether it was saved from exclusion under Item 5, List B by one of Items 1, 22 or 24 of List C (13).
HMRC's Ground 1 argued that the FTT wrongly characterised the Quay Wall as 'apparatus' rather than premises, and that it erred in its application of the Barclay, Curle analogy and the plant/premises test (37).
HMRC's Ground 2 argued that Item 1, List C was not applicable because expenditure on the Quay Wall could not properly be characterised as expenditure on the provision of the STS Cranes, and that the FTT applied the wrong (necessity) test (37, 129-130).
MDHC's Respondent's Notice challenged the FTT's conclusions that Items 22 and 24 of List C would not, in the alternative, have saved the expenditure (39).
Court findings
The Upper Tribunal found that the FTT had erred in law in its analysis of whether the Quay Wall functioned as plant, because it wrongly treated the Quay Wall and the STS Cranes as a composite asset and wrongly drew a direct analogy with Barclay, Curle, where the entire dry dock (not a separate structure plus ancillary plant) was the relevant asset (58-75).
The Tribunal held that the FTT did not confuse the two routes to qualifying expenditure (Error 2) and did not err as alleged in Error 3 (76-84). However, it found that the FTT erred (Error 5 and Error 6) in failing to properly assess the Quay Wall's other functions against its plant-like functions and in failing to give adequate reasons for preferring the expert evidence of Mr Neal over that of Mr Corrigan as to the Quay Wall's predominant purpose (85-98, 99-115).
The Tribunal rejected HMRC's Error 7 concerning the FTT's treatment of the agreed treatment of the rear crane piles and crane rails (116-121), and rejected Error 8, finding it could not say that the FTT's conclusion was outside the ambit of any reasonable evaluative judgment given the limited findings of fact available (122-128).
On Ground 2, the Tribunal held that the FTT erred in applying a test of 'necessity' rather than the narrow test, requiring a close connection between expenditure and the plant provided, as later established by the Supreme Court in Orsted West of Duddon Sands (UK) Ltd v HMRC [2026] UKSC 12 (129-143).
On delay, the Tribunal accepted the 11-month gap between hearing and Decision was unacceptable without good reason, but found no sufficient causal link between the delay and the identified errors, so delay did not constitute a freestanding ground (144-147).
On MDHC's Respondent's Notice, the Tribunal declined to consider the Item 22 challenge as academic (148-152), and upheld the FTT's conclusion on Item 24, finding that 'jetty or similar structure' did not extend to the Quay Wall (153-159).
Outcome
The Upper Tribunal held that the FTT made material errors of law: in its composite-asset analysis and reliance on a direct Barclay, Curle analogy; in failing to give reasons for preferring Mr Neal's evidence over Mr Corrigan's as to the Quay Wall's primary purposes; and in applying a necessity test rather than the narrow 'close connection' test under Item 1, List C (160).
The Decision was set aside. The Upper Tribunal held it was not in a position to re-make the decision and remitted the appeal to the FTT for reconsideration of the matters where errors of law were identified and consequential matters (161).
The Tribunal directed that reconsideration should be by a new panel, that a full re-hearing would not be necessary, that the FTT's findings of fact would stand save as indicated, and that the new panel would have transcripts of the evidence and submissions from the original hearing (161).
Major issues / areas of contention
- Whether expenditure on the Quay Wall was capital expenditure 'on the provision of plant or machinery' within section 11(4)(a) CAA 2001.
- Whether the FTT wrongly analysed the Quay Wall and the STS Cranes as a single composite asset rather than considering the Quay Wall's functions on its own.
- Whether the FTT's direct analogy with IRC v Barclay, Curle & Co Ltd was properly drawn.
- Whether the FTT gave adequate reasons for preferring the expert evidence of Mr Neal over that of Mr Corrigan on the predominant function of the Quay Wall.
- Whether the FTT applied the correct (narrow, 'close connection') test, rather than a test of necessity, in finding the expenditure saved by Item 1, List C CAA 2001.
- Whether expenditure on the Quay Wall could properly be characterised as expenditure on the provision of the STS Cranes for the purposes of Item 1, List C.
- Whether the 11-month delay between hearing and the FTT's Decision undermined the safety of the Decision.
- Whether Item 22 (alteration of land for installing plant) or Item 24 (jetty or similar structure) of List C could save the expenditure, raised by MDHC's Respondent's Notice.
- Whether the Upper Tribunal should remake the decision itself or remit the matter to the FTT.