Altrad Services Ltd (Formerly Cape Industrial Services Ltd) v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Whipple,Lord Justice Newey |
| Judgment Date | 03 May 2023 |
| Neutral Citation | [2023] EWCA Civ 474 |
| Docket Number | Case No: CA-2022-001869 |
| Court | Court of Appeal (Civil Division) |
[2023] EWCA Civ 474
Lord Justice Newey
and
Lady Justice Whipple
Case No: CA-2022-001869
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
MRS JUSTICE FALK AND UPPER TRIBUNAL JUDGE JONATHAN RICHARDS
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Peacock KC and Edward Hellier (instructed by KPMG LLP) for the Taxpayer Respondents
Jonathan Davey KC and Barbara Belgrano (instructed by Solicitor's Office and Legal Services) for HMRC as Appellants
Hearing date: 4 April 2023
Approved Judgment
Introduction
Altrad Services Ltd and Robert Wiseman and Sons Ltd (the “Taxpayers”) appealed to the First Tier Tribunal against closure notices issued by the Commissioners for HM Revenue and Customs (“HMRC”) restricting the Taxpayers' claims to capital allowances arising out of certain transactions entered into in 2010.
The FTT (Judge Harriet Morgan, decision released on 23 March 2020) dismissed the Taxpayers' appeal on what she referred to as Issue 1 (which is now Ground 1 in this appeal, see below), although she was not with HMRC on other issues raised in the appeal before her. The Upper Tribunal (Falk J and UTJ Jonathan Richards, decision released on 12 July 2022 with neutral citation [2022] UKUT 00185 (TCC)) reversed the FTT on Issue 1, and upheld the FTT on other grounds, with the result that the Taxpayers' claims for capital allowances succeeded in full.
HMRC has applied for permission to appeal to the Court of Appeal. HMRC's Grounds of Appeal dated 26 September 2022 set out two grounds of challenge to the UT's decision:
a. Ground 1: the UT erred in law in concluding that the taxpayers ceased to own plant and machinery for the purposes of section 61(1)(a) of the Capital Allowances Act 2001 (“ CAA 2001”).
b. Ground 2: the UT erred in law in assuming that the taxpayers incurred qualifying expenditure for the purposes of section 11(4)(a) of CAA 2001.
By an order dated 12 December 2022, I granted permission for Ground 1 and no issue now arises in relation to it; there will be a substantive hearing of the appeal in due course. I adjourned the application for permission for Ground 2 to an oral hearing, indicating that I considered Ground 2 to be arguable but there was a dispute as to whether the Court should permit it to be argued at this stage; the dispute turned in large part on whether the point raised was a new point and if so, on whether there would be prejudice to the Taxpayers if HMRC were granted permission to argue it.
The oral hearing took place on 4 April 2023 before Newey LJ and me. We reserved judgment. At that hearing, Mr Davey KC (who did not appear below) and Ms Belgrano appeared for HMRC. Mr Peacock KC and Mr Hellier appeared for the Taxpayers. I am grateful to Counsel and their respective legal teams for their considerable assistance.
I have concluded that HMRC should have permission to rely on Ground 2 on condition that certain assumptions are made as to the evidence which would have been adduced by the Taxpayers had the point been taken in the FTT.
Law
Ground 1 raises issues concerning section 61(1)(a) of the CAA 2001. That provides:
“ 61 Disposal events and disposal values
(1) A person who has incurred qualifying expenditure is required to bring the disposal value of the plant or machinery into account for the chargeable period in which –
(a) the person ceases to own the plant or machinery; …”
Ground 2 raises issues concerning section 11 of the CAA 2001. That provides, so far as is relevant:
“ 11 General conditions as to availability of plant and machinery allowances
(1) Allowances are available under this Part if a person carries on a qualifying activity and incurs qualifying expenditure.
…
(4) The general rule is that expenditure is qualifying expenditure if—
(a) it is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure, …”
Background
The Taxpayers entered into arrangements which were described by the UT:
“15. Both [Taxpayers] owned plant and machinery (the “Assets”) on which they were entitled to claim capital allowances on the “reducing balance” basis set out in CAA 2001. Like the FTT at [6], we explain the arrangements by assuming that the market value of that plant and machinery was £100 on implementation of the arrangements.
16. Each [Taxpayer] sold the Assets to a leasing company in the Société Générale banking group (“SGLJ”) for their market value of £100 and, as a result, ceased to be the legal or beneficial owner of the Assets.
17. Immediately following the sale:
(1) SGLJ entered into a short-term finance lease (a “Lease”) with each [Taxpayer] for a duration of three or four weeks. Each [Taxpayer] was obliged to pay rentals totalling £5 for the use of the Assets during that period.
(2) Each [Taxpayer] granted SGLJ an option (the “Put Option”) entitling SGLJ to sell the Assets back to the [Taxpayer] on termination of the relevant Lease. The price payable by [a Taxpayer] on any exercise of the Put Option (the “Option Price”) was the predicted market value of the Assets on termination of the Lease (£95).
(3) SGLJ granted another company in each [Taxpayer]'s group an option (the “Call Option”) entitling that group company to purchase the Assets from SGLJ. The Call Option was exercisable, very broadly, at the same time as the Put Option and for the same Option Price as was payable on exercise of the Put Option.
(4) The ultimate parent company of each [Taxpayer] gave SGLJ a “Parent Guarantee” guaranteeing the payment of all sums due to SGLJ under the Lease, Put Option and related documents.
18. Each [Taxpayer] paid rent and all sums due under the Lease. Each Lease terminated in accordance with its terms a few weeks after it was granted. On that expiry, SGLJ exercised the Put Option, each [Taxpayer] paid SGLJ the £95 Option Price and became legal and beneficial owner of the Assets once more.
19. The [Taxpayers] hoped and intended that the arrangements would be analysed in the following way pursuant to CAA 2001:
(1) On the sale of the Assets to SGLJ, there would be a disposal event for the purposes of s61(1)(a) of CAA 2001 on the basis that they ceased to own the Assets. They would have to bring a disposal of value of £100 into their general capital allowances pool, ostensibly reducing their entitlement to capital allowances because of a reduction in the pool of expenditure.
(2) However, the Lease was a “long funding finance lease” for the purposes of Chapter 6 of Part 2 of CAA 2001. In its capacity as lessee under a long funding finance lease, each [Taxpayer] was entitled to capital allowances under s70A of CAA 2001 by reference to qualifying expenditure treated as incurred on the provision of the Assets. The amount of that capital expenditure was, by s70C and s70YE of CAA 2001, the aggregate of:
(a) £5 — being the present value of the rentals due under the Lease; and
(b) £95 — the Option Price, which represented a guarantee of any residual amount for the purposes of s70YE(1)(a).
This is referred to in the legislation as the “commencement PVMLP”.
(3) Accordingly, the disposal value of £100 brought into the [Taxpayers'] general plant and machinery pool was immediately counteracted by an addition of £100 of qualifying expenditure to that pool under the long funding finance lease regime.
(4) On expiry of the Lease, the [Taxpayers] were required to bring a disposal value into their general plant and machinery pool under s70E of CAA 2001. That disposal value was the difference between:
(a) “QE” in s70YE, which was the amount of each [Taxpayer's] qualifying expenditure treated as incurred under the Lease – namely £100; and
(b) “QA” in s70YE, defined as the aggregate of “the payments made to the lessor by the person under the lease…” (the £5 rent) and “the payments made to the lessor by the person under a guarantee of any residual amount” (the £95 Option Price) — in total £100.
(4) Since both “QE” and “QA” for the purposes were £100, their difference was nil with the result that neither [Taxpayer] was required to bring into account any disposal value on expiry of the Lease.
(5) Finally, on exercise of the Put Option each [Taxpayer] incurred £95 of qualifying expenditure under s11 of CAA 2001 which was “capital expenditure on the provision of plant or machinery” and so qualified for capital allowances.
20. It can be seen that the [Taxpayers] contend that the overall effect of the arrangements in each case was to “step up” the amount of qualifying expenditure in their general pool that qualified for capital allowances by £95 without any acquisition of new plant and machinery. Moreover, although the [Taxpayers] entered into these arrangements just once, if their analysis is correct, the transactions could (at least in theory) have been repeated multiple times, leading to a potentially limitless increase in their entitlement to capital allowances.”
HMRC took issue with the Taxpayers' analysis and issued closure notices restricting the Taxpayers' claims to capital allowances. The Taxpayers appealed.
At the FTT, HMRC made the overarching argument based on Ramsay 1 that the Taxpayers did not cease to own the Assets (as the FTT had defined them) for the purposes of section 61(1)(a) CAA 2001 when they sold them to SGLJ. This was Issue 1 before the FTT and Ground 1 before this Court. HMRC also raised various technical objections to the Taxpayers' claims, which formed the basis of Issues 2, 3 and 4 before
the FTT. The FTT found...To continue reading
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