Chapter CA20060

Published date16 April 2016
Record NumberCA20060
CourtHM Revenue & Customs
IssuerHM Revenue & Customs

The condition that the qualifying expenditure must be incurred ‘on the provision of plant or machinery’ should be interpreted narrowly. The case of Ben-Odeco Ltd. v Powlson, 52TC459 showed that remote or indirect expenditure does not satisfy this condition, and therefore does not qualify for PMAs. Transport and installation costs of plant or machinery satisfy this condition however and can therefore qualify for PMAs.

Ben-Odeco Ltd borrowed a large amount of money to finance the construction of an oil-drilling rig and charged the commitment fees and the interest to capital. It claimed capital allowances on the commitment fees and interest on the loan as part of the cost of the rig. The House of Lords refused the capital allowance claim because the commitment fees and interest were not expenditure on the provision of the rig. They were expenditure on obtaining funds with which to acquire the rig.

‘On’ what has expenditure been incurred?

In avoidance cases such as Tower MCashback LLP 1 v HMRC [2011] 2 AC 457, The Vaccine Research Limited Partnership v HMRC [2014] UKUT 0389 (TCC) and Marathon Oil U.K., LLC v HMRC TC06217, courts and tribunals have considered it to be necessary to determine the ‘purpose and object’ of expenditure in order to establish what that expenditure had been incurred ‘on’.

In the first two cases the taxpayers sought to inflate allowance entitlement, so as to get more than would otherwise be...

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