“(1) Landscape, seascape and visual assessments; these involve determining the impact of the windfarm on the surrounding landscape and seascape, as well as the visual impact of the windfarm from various pre-selected onshore viewpoints (how the windfarm can be seen from land). These are considered by reference to different layout options. They also review the potential mitigation measures to reduce those potential impacts. (2) Benthos studies; these include describing the benthic species present at the site, identifying the potential impacts of the windfarm on those species and identifying potential mitigation measures to reduce those impacts. Benthic species are those organisms living in or on the seabed. (3) Ornithology and collision risk studies; these involve an assessment of potential impacts arising from the construction operation and decommissioning of the windfarm and include: Identifying the type and population of birds likely to be affected; their migratory and other habits; whether they are protected species; their range of flight heights, and options for mitigating those impacts. (4) Fish and shellfish studies; these involve providing information on the presence of fish and shellfish species in the vicinity of the windfarm and export cable routes, which are of conservation or commercial interest. They review the potential impacts to those species and potential mitigation measures to reduce those potential impacts and describe the likely impacts if mitigation options are used. (5) Marine mammal studies; these involve: Determining the key species in the area of the windfarm and their populations; reviewing the potential impacts to those species and potential mitigation measures to reduce those potential impacts and describing the likely impacts if mitigation options are used. (6) Archaeology, wrecks and cultural heritage site studies; these include: Determining the number of maritime sites and finds such as known wrecks, reported losses and recorded obstructions within the area of the windfarm; determining the number of known sites and finds of historic settlement and occupation; determining the level of archaeological potential of the sites and finds within the windfarm site; showing the location of wrecks, obstructions and finds; identifying the potential impact during construction operation and decommissioning on archaeological remains; and proposing mitigation to minimise those impacts. (7) Noise assessment studies; these include: A determination of the level of underwater noise and airborne noise during the construction operation and decommissioning of the windfarm; determining the patterns of noise during those phases and proposing mitigation measures. (8) Telecoms and radar interference studies; these include: A determination of existing cable routes and the location of television and radio transmitters; determination of potential electromagnetic interference to signals by radiation emitted from generator equipment on the windfarm site; and determining potential disturbance to submarine telecommunication cables by electricity export cables from the windfarms. (9) Traffic, transport and access studies; these involve: A determination of the level and type of air and maritime traffic in the windfarm area and the risks of collision; determining any interference with aviation routes from nearby airfields; identifying navigational risks for commercial and recreational shipping and options to mitigate these risks; identifying the impact on tourism in the local area; identifying vessel anchoring and dredging spots and determining cumulative impacts with other planned windfarm developments nearby. (10) Socio-economic and tourism assessment; this involves the determination of the impact of the windfarm construction and operation on the human environment in the region, including any increase in employment and impact on tourism.”
“on the provision of”
“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, and (b) the person incurring the expenditure owns the plant or machinery as a result of incurring it.”
“The function which the dry dock performs is that of a hydraulic lift taking ships from the water onto dry land, raising them and holding them in such a position that inspection and repairs can conveniently be effected to their bottoms and sides. It is unrealistic, in my view, to consider the concrete work in isolation from the rest of the dry dock. It is the level of the bottom of the basin in conjunction with the river level which enables the function of dry docking to be performed by the use of dock gates, valves and pumps. To effect this purpose excavation and concrete work were necessary.”
“But in the present case this dry dock, looked upon as a unit, accommodates ships, separates them from their element and thus exposes them for repair; holds them in position while repairs are effected, and when this is done returns them to the water. Thus the dry dock is, despite its size, in the nature of a tool of the respondents’ trade and, therefore, in my view, ‘plant.’”
“So the question is whether, if the dock is plant, the cost of making room for it is expenditure on the provision of the plant for the purposes of the trade of the dock owner. In my view, this can include more than the cost of the plant itself because plant cannot be said to have been provided for the purposes of the trade until it is installed: until then it is of no use for the purposes of the trade. This plant, the dock, could not even be made until the necessary excavating had been done. All the commissioners say in refusing this part of the claim is that this expenditure was too remote from the provision of the dry dock. There, I think, they misdirected themselves. If the cost of the provision of plant can include more than the cost of the plant itself, I do not see how expenditure, which must be incurred before the plant can be provided, can be too remote.”
“It only remains to deal with the second point raised by the appellants. This is that even if the concrete work were ‘plant’ the cost of excavation did not qualify under Chapter II. The commissioners upheld the contention of the revenue upon this point, their view being that the expenditure was ‘too remote’ from the provision of the dry dock. In my view, they were wrong in excluding this expenditure. The excavation was a necessary preliminary to the construction of the dry dock and, in my view, was covered by the provision of plant under section 279. ‘Provision’ must cover something more than the actual supply. In this case it includes the excavation of the hole in which the concrete is laid.”
“As regards the cost of the necessary excavation, I think this comes within the words ‘expenditure on the provision of machinery or plant’ in section 279 (1), again regarding the dry dock as a whole. Similar expenditure incurred in relation to a building or structure is now regarded as ‘expenditure on the construction’ of such building or structure for the purposes of section 265 (1) without any further or more express provision, and I think rightly so. The appellants say that if a comparable construction be given to the relevant words in section 279 (1) relating to plant and machinery, then section 300 of the same Income Tax Act, 1952, would be unnecessary. But that section relates to ‘alterations to an existing building incidental to the installation of machinery or plant’; and its wording suggests that it was enacted simply as an assurance to remove doubts about a particular kind of case.”
“I bear in mind that it arose under a different statute and one which not only uses a different expression, but whose policy as regards deductions seems to be more liberal than the U.K. statute. The expression ‘capital cost to the taxpayer’ makes it easier to include within deductible expenditure costs which the particular taxpayer incurs, whereas the U.K. words, more objectively, focus on expenditure directly related to the plant. The one draws a line round the taxpayer and the plant; the other confines the limiting curve to the plant itself.”
“An important principle of the laws of taxation is that, in the absence of clear contrary direction, taxpayers in, objectively, similar situations should receive similar tax treatment. The taxpayer’s argument in the present case does not bring this about. On the contrary a different result would follow according as he pays for the provision of plant out of his own resources, or borrows it. In the latter case he would get an allowance, in the former he would not — this may amount to treating an investor worse than a speculator. Moreover, on the same argument, a different allowance in respect of identical plant would result according as he (i) borrows from a bank, (ii) raises money by a public issue of debentures, (iii) obtains money from his shareholders. And, again, a different result would follow according as (i) he is able to capitalise the interest on the money borrowed or (ii) (because he is carrying on a profit-making trade or for other reasons) does not or cannot capitalise it. If the law is such that it offers the taxpayer these options, he is of course entitled to select that which suits him best, but an interpretation which introduces such a large element of subjectivity is to be avoided. The words ‘expenditure on the provision of’ do not appear to me to be designed for this purpose. They focus attention on the plant and the expenditure on the plant — not limiting it necessarily to the bare purchase price, but including such items as transport and installation, in any event not extending to expenditure more remote in purpose. In the end the issue remains whether it is correct to say that the interest and commitment fees were expenditure on the provision of money to be used on the provision of plant, but not expenditure on the provision of plant and so not within the subsection. This was the brief but clear opinion of the special commissioners and of the judge and little more is possible than after reflection to express agreement or disagreement. For me, only agreement is possible.”
“In the first place I believe that the more accurate and the more natural answer to the question on what was the£5 ½ million spent, is that£5 million was spent on the provision of plant and machinery and£500,000 on the loan charges required in order to obtain the money to pay for the plant and machinery. In the second place I favour a meaning to the statute which will provide the same allowance for the taxpayer who meets the cost of an oil rig out of his own accumulated resources, the taxpayer who meets the same cost by a debenture issue or an issue of shares to the public, and the taxpayer who simply borrows the money from a bank, or some other source of liquid finance. In the third place I am not satisfied that the policy of the statute really conforms with the appellants’ contention. Granted that its main purpose was to encourage investment in new machinery and plant, I am not convinced that to include interest charges and commitment fees would serve this purpose without giving rise to abuse. It was agreed in argument that if the constructing company borrowed money in order to finance the construction of the rig and added the interest and commitment fees into the price charged to the purchaser, the total price to the purchaser would rank for first-year allowance. But how if the purchaser in his turn borrowed the money to pay the price containing these components? It seems to me that, on the appellants’ contention, he would be able to add the second tier of commitment fees and interest. By the time a complicated piece of machinery was ultimately delivered and paid for there might be more than one, indeed more than two, sets of commitment charges and interest payments included in the ultimate purchase price and several additional costs of financing the project by the trader to be included in the allowance the revenue might be compelled to make to the trader. It is true, of course, that, if the appellants’ case were conceded what would emerge would be a coherent and superficially elegant system of taxation in which the interest charges before trading would be allowable as first-year capital allowance, and after the commencement of trading would be deductible as expenses in the computation of profits. But I am by no means certain that this was the intention of the legislature. To qualify for an allowance the taxpayer must bring himself within the conditions set by the benevolence of Parliament. I am not convinced that this taxpayer has done so in the present case.”
“In my view the question to be asked is, what is the effect of particular capital expenditure? Is it the provision of finance to the taxpayer, or is it the provision of plant to the taxpayer? In my opinion the effect of the expenditure was the provision of finance and not the provision of plant. I would add that I do not seek to confine qualifying capital expenditure to the price paid to the supplier of the plant. I should have thought, for example, that if the cost of transport from the supplier to the place of user is directly borne by the taxpayer it would be expenditure on the provision of plant for the purposes of the taxpayer’s trade. And there may well be other examples of expenditure, additional to the price paid to the supplier, which would qualify on similar grounds. But such matters are not for decision in this appeal.”
“I contrast the present case with that of a company with already available assets used to buy the plant: on the appellant’s [i.e. taxpayer’s] argument such a company using its already available assets would be relatively disadvantaged in respect of loss of any fruit of such available assets. The point was made for the appellant that if the provider of the plant borrowed for working capital and incurred as a result liability for interest and perhaps a commitment fee in respect of such borrowing, these liabilities would be reflected in the price paid, the whole of which would qualify as relevant capital expenditure by the company buying the plant. That is so: but I do not follow the conclusion from that fact. It does not appear to me to be an alternative to borrowing by the purchaser. The supplier’s price would reflect the whole cost to him of supplying the plant, including overheads. interest on necessary borrowing, or on commitment of working capital, and a profit element, the whole price being subject to a perhaps competitive market. I am not able to see how the build-up of the supplier’s price can have any relevance to the problem raised in this appeal.”
“[393] We note that s 134 is not confined to expenditure ‘on the asset’ but applies to expenditure ‘on the acquisition’ of the asset. The natural meaning of that is to include costs directly related to the acquisition. [394] If we apply Lord Russell’s test: ‘what was the effect of the expenditure?’, in relation to the cost of negotiating and preparing the agreements, it seems to us that the answer is not that the effect was the production of a piece of paper, but was the acquisition of an asset. [395] For this reason we find that expenditure on the negotiation and drafting of the agreement to acquire the films (but not their leasing) would be expenditure on the acquisition of films, and thus deemed to be a revenue nature by s 134. [396] For the same reasons, but on balance, that we find that expenditure on identifying the films was expenditure ‘on the acquisition’ of the films. [397] On the other hand, expenditure in arranging finance for the partners was not in our view expenditure on the acquisition of the film. Applying Lord Russell’s test its effect was the provision of finance to the partners, not the provision of the film: in ordinary language expenditure on getting a mortgage would not be regarded as expenditure on acquiring a house. The exclusion in s 130(5) of interest and incidental costs of finance also makes this clear: we do not regard it as otherwise extending the ambit of s 130(3). [398] Nor, for the same reasons was expenditure related to the structuring of the partnerships (particularly in the case of Proteus) expenditure on the acquisition of the film. [399] Thus, to the extent that the relevant parts of the expenditure on Future’s fees can be identified, some of those parts are to be taken as revenue as a result of s 134 and are thus capable of deduction ….”
“I also find Guthrie of assistance, because it shows that in answering the question what expenditure is incurred on, in a statutory context designed to provide relief for the expenditure, the focus should be on the fact and the object of the expenditure, rather than on whether the money was well spent. I agree with Nugee J … that no distinction can sensibly be drawn between the statutory language of the relevant provisions in ITTOIA, which refer to a person who has ‘incurred acquisition expenditure’, which itself means ‘expenditure incurred on the acquisition of’ the original master version of a film, and the wording ins 15(1) of the Income Tax Act 1945 , which refers to a person who ‘incurs capital expenditure on the provision of machinery or plant’.”
“In stark contrast, the respondents contended that the items for which allowances could be claimed under s 66 were for alteration works incidental to the pure physical installation of the plant in an existing building, and not to alterations geared to facilitating the better use of the installed items. Thus the respondents gave as an example of an allowable item the moving of a staircase in an existing building where the installation of plant might prevent people accessing other floors that they had previously been able to access. Similarly, if a large item of plant was installed in an existing building, and it blocked the windows so that old windows had to be bricked up and new window apertures created, that type of alteration to the building, consequent upon the installation of the plant, was all that the section provided for. It followed from the respondents’ contentions that the section was providing for allowances for expenditure particularly occasioned by the installation of plant in an existing, rather than a new, building that of its very nature the expenditure would not have to be incurred, at least in a similar way, in the case of installations in a new building.”
“[65] We accept the point made by the respondents, to the effect that if the installation of plant in an existing building means that certain alterations have to be made to the building, albeit that they may not affect the operation or use of the plant, then allowances can be claimed for those alterations. Thus, we agree with the example advanced by the respondents that if the installation of plant necessitates some alteration to a pre-existing staircase because the installation of the plant would otherwise prevent use of the staircase to get to other floors, then expenditure on that alteration would qualify for allowances under the section. [66] Whilst as a general rule we accept that it is s 24, rather than s 66 that covers the expenditure on installing plant or machinery, we do not rule out the application of s 66 to some items of expenditure that might well be directly related to the installation of plant. For instance if the existing staircase, referred to in the previous paragraph, had to be modified to facilitate access to the plant, it would be odd if that expenditure failed to qualify under s 66, when that conceded by the respondents in their example mentioned in paras 43 and 65 did qualify for allowances. The expenditure on moving the staircase to facilitate access to the installed plant might equally qualify for allowances under s 24, though allowances under that section might be denied by the case law in relation to ‘premises’ or by the provisions of Sch AA1. But we consider that the expenditure would still qualify under s 66.”
“Preliminaries are, by their nature, items of overhead expenditure which cannot be, or which have not been, attributed to any single item in the building project. Some, like insurance, are inherently incapable of being so attributed. Others, like scaffolding, may be capable of specific attribution, but the time and cost involved in the process of specific attribution is often disproportionate to the amount at stake. Thus, apportionment of preliminaries between items which do, or do not, qualify for capital allowances is the only solution in relation to unattributable preliminaries, and may be the sensible solution where attribution is uneconomic.”
“To the extent that this sensible conclusion involved any issue of law at all, we unhesitatingly agree with it. It cannot have been the intention of the legislature that a trader should have to spend more on the minute attribution of preliminaries to underlying items of work than either their cost or the value of the capital allowance thereby to be obtained.”
“[127] The OED defines ‘install’ as ‘place (an apparatus, system, etc.) in position for service or use.’ We accept that the case law does not limit the term to simply taking a prefabricated asset and placing it in position … However, in the case law which we have reviewed, the common theme is the process which involves the integration, often with a degree of complexity of an article or articles which have already been made into another article, structure, building or even the land itself. In none of the cases that we have been referred to has a term been held to include the creation of an item of plant in situ. [128] … It seems to us that Item 22 in List C is confined to items which need to be installed separately from the process of manufacture or construction.”
“the designs, which are the tools of the trade of the styling committee and many of which are scrapped after a few years, might, I should have thought, qualify as ‘plant’ just as fully as the hand blocks, silk screens and rollers, many of which are periodically scrapped.”
“Can the cost of acquiring the designs be said to be expenditure on the provision of the blocks, screens and rollers on which some of them are patterned?”
“If - to take a rather fanciful example - A commissions B to provide him with a patterned wood block so that A may experiment in printing wallpaper with a hand block, B would obviously be entitled to include in his bill the cost of acquiring a suitable design. But Counsel for the Crown pointed out that in that case if one asked B, ‘What are you buying that design for?’, he would answer, ‘In order to provide A with the patterned wood block for which he has asked me’; whereas in this case, if you asked the Company’s representative, ‘Why are you buying these designs?’, he would not answer, ‘In order to provide the Company with wood blocks, screens or rollers patterned with them’, but would answer, ‘In order that the styling committee may have before it a wide variety of designs from which to select a few which they think are best adapted for reproduction on our papers and fabrics’. I feel the force of this argument, but the section itself isolates the provision of the patterned wood block and poses the question: What did the Company spend on it? To my mind, it cannot be right to include nothing for the cost of the design. I can well understand it being argued that, as so many of the designs are never actually put on any block, screen or roller, only some fraction of the total design costs should be allowed, and I do not think that Commissioners of Inland Revenue v George Guthrie & Son would be an authority against such an argument, for in that case the car would have been used if it had been delivered. But what was argued before me was that not one penny of the design costs should be allowed. To my mind, that cannot be right, and therefore I shall dismiss the appeal.”
“Professional fees, such as survey fees, architects’ fees, quantity surveyors’ fees, structural engineers’ fees, service engineers’ fees or legal costs, only qualify for PMA [i.e. plant and machinery allowances] as expenditure on the provision of plant or machinery if they relate directly to the acquisition, transport and installation of the plant or machinery and as such are part of the expenditure incurred on the provision of the plant or machinery. The same rule of law applies to preliminaries. Preliminaries are indirect costs incurred over the duration of a project on items such as site management, insurance, general purpose labour, temporary accommodation and security. Where preliminaries and professional fees are paid in connection with a building project that includes the provision of plant or machinery, only the part, if any, which relates to services that can properly be regarded as on the provision of plant or machinery can be qualifying expenditure for PMA ….”
“Expenditure treated as incurred on the construction of a building includes: • professional fees relating to the design and construction of a building provided that the building is actually constructed ….”
“We also consider that the clear sense from the authorities is that plant, and the provision of it, appears at the centre of the basis for deduction. To provide plant assumes that there is already some notion of the plant in respect of which provision of it becomes relevant. As we have explained, provision is focussed on the cost of doing, making or constructing. The intellectual effort which goes into the design process may be instrumental to conceiving of what the plant, that is to be made or constructed is, but it appears odd to refer to the design of the plant (which is something which happens when the final form and shape of the plant is still to be determined) as the provision of the plant (which assumes the plant is final such that it can be provided).”
“179. In summary, the application of the strict and narrow principle encapsulated in the legislation, means that design of plant and the data inputs to that design, do not constitute provision of plant and that at (even at the level of generation assets – i.e. the level favourable to taxpayer and against HMRC’s case) none of the disputed environmental impact or other technical studies qualify as ‘on provision of plant’. None of the studies were provision of the plant (the generation assets), in that expenditure on them was not expenditure on the actual making or construction of the plant, its actual installation, or actual transport of it. Nor were they expenditure of a similar nature. 180. That is true even of the ‘high water mark’ of the taxpayers’ case: the metocean detailed studies. The information from this fed into the design of the unique foundations. However, the studies were not provision of plant because they were inputs to design and even if the studies were design themselves that was not the provision of plant but provision of design which put the taxpayers in the position of providing plant. The expenditure on provision of the plant was the expenditure on making the foundations further to the design, and the costs in installation of them. 181. We have also considered whether any element of the studies meets the threshold for counting as ‘installation’ but conclude in summary that the studies, insofar as they concerned installation, constituted advice on where, how or when to install but were not the actual installation of the plant. There was some debate at the hearing about the nature of the work for establishing where unexploded bombs were and whether that work qualified. This was not simply generic advice that bomb locations should be avoided but included surveys undertaken which identified the precise geographic locations of ordinance. That was obviously necessary information to make sure the turbines and cables were installed safely. However even those studies and surveys were not in our view installation, they were preparatory work that needed to take place before installation could take place. The installation cost which fell under provision were the actual costs of installing the turbines and cables comprising the generation assets. 182. The result, that none of the environmental and technical studies qualify also reflects the answer given to the question per the approach in Ben Odeco whether the studies are on provision of plant or on something else.”
“Is it the provision of finance to the taxpayer, or is it the provision of plant to the taxpayer?”
“The designs (patterns) were used to complete the plant (i.e. the wooden block) not to design the wooden block. The designs (i.e. the patterns drawn by the artists) were part of making the wooden block function as a wallpaper patterning block (the Revenue had conceded the blocks would be inchoate plant’ without the patterns on them).”
“It is clear from the discussion and imposition of safety zones during the construction phase which is identified in the studies for all four windfarms that these studies relate directly to the construction of the windfarms and the installation of the wind turbines. In order for the installation to be safe, there must be exclusion or safety zones. Furthermore, the fact that safety zones were also considered in the context of the operational phase, even if they were not adopted as in the two Gunfleet sites is an indication that they are relevant to the overall design and configuration of the sites. Permanent safety zones during the operational phase were adopted in the cases of Walney and WODS [i.e. West of Duddon Sands Offshore Windfarm] and I have no doubt that the necessity for those safety zones would have been fed into the computer model on which the design of the sites was based. Furthermore, it is clear from the foregoing evidence that the boundary at Walney was altered to take into account helicopter traffic, and it was Mr Mechali’s evidence that at WODS the originally planned northern and southern boundaries of the windfarm were significantly altered to minimise impacts on shipping navigation.”
“195. It is clear to me from the foregoing evidence (and the facts that I have found from it) that the detailed metocean studies directly relate to the necessary design of both the windfarms as a whole and to the wind turbines located in each position on those sites. This windfarm specific evidence corroborates the more general evidence given by the oral witnesses which was that the data from the metocean studies was used for the computer models which generated the necessary designs both for the configuration of the windfarms and for the wind turbines. 196. Without these metocean studies the specific design of the wind turbines could not be undertaken and so they could not have been fabricated. They would have been useless for the purpose for which they were intended namely the generation of electricity. So, the expenditure on the studies directly relates to the necessary design of the wind turbines. It follows that they also directly relate to the necessary design of the windfarms, as a whole, (or rather to the generation assets as a whole) since the specific design of each wind turbine means that it must be positioned at a specific site at each windfarm. Without positioning it at that specific site, it would not be capable of carrying out its function of generating electricity.”
“I have no doubt that the evidence, both oral and documentary, and the findings of fact I have made in respect of that evidence, clearly demonstrate that, as submitted by the appellants, the geophysical and geotechnical studies directly relate to the necessary design of both the windfarms as a whole, and to the design of the individual wind turbines. This is the case for both the detailed to geophysical and geotechnical studies and the reconnaissance studies …. The purpose or function of the wind turbines was to generate electricity. To fulfil that purpose or function, the wind turbines had to be specifically designed to take into account the metocean and geotechnical and geophysical conditions which applied at the specific positions at which those wind turbines were to be installed in the windfarms. Without that data, the wind turbines could not be specifically designed and this, in my opinion, would have rendered them useless and unable to fulfil their function of generating electricity. And once they had been so designed, each wind turbine had to be installed at a specific position in each windfarm. And so these studies directly related to the necessary design of the windfarms as a whole.”
“(1) This section applies if a company incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the company starts to carry on the trade (‘the start date’). (2) If, in calculating the profits of the trade— (a) no deduction would otherwise be allowed for the expenses, but (b) a deduction would be allowed for them if they were incurred on the start date, the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).” (a) no deduction would otherwise be allowed for the expenses, but (b) a deduction would be allowed for them if they were incurred on the start date, the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).”
“I have found the expenditure on some of the studies not to have been on the provision of either the generation assets or the single item of plant, or the wind turbines and array cables as items of plant. But I have done so on the basis of the highly specific wording that appears in the capital allowances legislation. I have not done so on the basis that the foregoing assets are not capital assets. It is to clear to me that the expenditure on the studies is expenditure on or in respect of assets which are capital in nature …. So there are identifiable capital assets on which the expenditure has been incurred. The expenditure is therefore on items of a capital nature and so is not deductible under section 61 CTA 2009 as pre-trading revenue expenditure.”
“We consider the FTT was right to reject the taxpayers’ case. It was open to find that the expenditure was not ‘on the provision of plant or machinery’ yet still conclude the expenditure was capital in nature. The House of Lords decision in Tucker (HMIT) v Granada Motorway Services Ltd. [1979] 1 WLR (Lord Wilberforce) explained how indicia to capital or revenue could point different ways and that previous authority had warned against applying formulae derived on one case to another. HMRC are right to point out that the division between revenue and capital expenditure turns on its own test which is different to the ‘on the provision of plant or machinery’ test in s11(4) CAA. While the term ‘test’ does not quite capture the approach by which an answer is reached to the capital vs revenue question, the key point is that the questions and ensuing analysis in respect of each are different. Items can, as Ms Wilson submitted, clearly be capital (for instance the interest costs on financing of the oil rig in Ben Odeco, which were capitalised), but still not meet the ‘on the provision of’ test.”
“… the taxpayer company expended money for the purpose of securing a permanent alteration to the nature of the land it owned or occupied; that is to say, a change from land confined to its existing use and of little or no value to the taxpayer company for the purposes of its trade to land capable of being turned to account pursuant to the taxpayer company’s subsequent trading activities. It was a lump sum for an enduring advantage static in nature in the sense that it was not the planning permission which would produce the profits but the subsequent operations of working and winning the minerals. It is, I think, unbusinesslike to say that if planning permission had been granted no new asset would have belonged to the taxpayer company. The asset in respect of which planning permission was granted would have been radically and enduringly changed, viewed as an asset of the taxpayer company’s business. It could be written up in value in the balance sheet; it would become potentially profit-making; it would be something which it was not before - namely, land from which minerals could be won and worked. On common sense principles, and with the benefit of judicial guidance in the reported authorities, it seems to me that the expenditure was of a capital and not of an income nature. To use the words of Lord Wilberforce in Inland Revenue Commissioners v. Carron Co. (1968) 45 T.C. 65, 75, the planning permission, if obtained, would in some sense have been an intangible asset of a capital nature. If that is right, money expended in seeking to acquire such an asset must equally be expenditure of a capital nature.”
“I think that the key to the present case is to be found in those cases which have sought to identify an asset. In them it seems reasonably logical to start with the assumption that money spent on the acquisition of the asset should be regarded as capital expenditure. Extensions from this are, first, to regard money spent on getting rid of a disadvantageous asset as capital expenditure and, secondly, to regard money spent on improving the asset, or making it more advantageous, as capital expenditure. In the latter type of case it will have to be considered whether the expenditure has the result stated or whether it should be regarded as expenditure on maintenance or upkeep, and some cases may pose difficult problems.”
“So it remains to decide the present case. For myself I cannot doubt where it lies: it is a case of once for all expenditure on a capital asset designed to make it more advantageous. It is true that the lease was non-assignable, so it had no balance sheet value before or after the modification. But it was none the less an asset and a valuable one for the appellant’s trade, and, if an asset, was a capital asset. It appears to me to be impossible to divorce the payment from the lease and to regard it as simply a payment intended to increase the appellant’s share of the profits. That it may have done, but the parties chose to do it through the medium of a lease, just as in the petrol filling stations cases, the object of increasing gallonage sales was effected through a lease. Nor in my opinion can the payment be regarded as payment of rent — that would be to confuse the measure, or basis of calculation of the payment with its nature. I agree therefore with both courts below in regarding the payment as a capital nature.”
“There are many cases, particularly those involving trading companies, where difficulties can arise in determining on which side of the revenue/capital line the expenditure in question falls. In these cases a helpful starting point is to identify whether some form of asset has been obtained: see Tucker v Granada Motorway Services Ltd[1979] 1 WLR 683 , 686, where Lord Wilberforce recognised that this approach can produce arbitrary results but concluded that it provides a basis for distinguishing between capital and revenue expenditure and should be maintained.”
“Drawing the threads together, although there is no single test to be applied in all circumstances, in most cases the objective purpose for which the payment is made is likely to be an important indicator. Where a capital asset (whether tangible or intangible) is obtained or can be identified, the starting point is to assume that money spent on the acquisition or disposal of the asset should be regarded as capital expenditure. There may be particular features of the payment or the circumstances … that displace that assumption. It may be helpful to consider the nature of what was obtained (the advantage) by the expenditure (including whether it is lasting or not), how it is used or viewed in the business and how the advantage was paid for (whether by a lump sum to acquire it or periodic payments for use for a particular period). Where money is spent on improving an asset, or making it more advantageous, that a payment is recurring may indicate that it is expenditure on maintenance or upkeep and therefore of a revenue nature, whereas a lump sum payment may indicate the opposite.”
“HMRC then amended the writing down allowances rather than the qualifying expenditure in the tax returns for the three windfarms other than WODS. This was a simple transcriptional error … but as far as the reasonable recipient of the closure notices was concerned, in light of the foregoing correspondence, it is inconceivable that the reasonable recipient would have thought those amendments restricted the ambit of the closure notices in the way suggested by the appellants. In the same way that was a mix-up over the numbers for the two Gunfleet sites, the recipient would have concluded that HMRC had simply made a secretarial error.”
“However, the Closure Notice was defective: it made no amendment to the amount of qualifying expenditure (£969,097,848 ) that was claimed by the Appellant in its return for the period ended31 December 2011 . In error, instead of adjusting the amount of qualifying expenditure by£15,576,689 and the amount of writing down allowances for the period by£3,012,532 , the Closure Notice adjusted the writing down allowances by£15,576,689 and made no adjustment to the amount of qualifying expenditure.”
“must include an assessment (a ‘self-assessment’) of the amount of tax which is payable by the company for that period— (a) on the basis of the information contained in the return, and (b) taking into account any relief or allowance for which a claim is included in the return or which is required to be given in relation to that accounting period.”
“Subject to subsections (1A) and (2) below, every return under section 8 or 8A of this Act shall include a self-assessment, that is to say— (a) an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and (b) an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source ... but nothing in this subsection shall enable a self-assessment to show as repayable any income tax treated as deducted or paid by virtue of section ... 246D(1) ... of the principal Act, section 626 of ITEPA 2003 or section 399(2) ... or 530(1) of ITTOIA 2005.”
“The closure notice must— (a) state that, in the officer’s opinion, no amendment is required of the return that was the subject of the enquiry, or (b) make the amendments of that return that are required— (i) to give effect to the conclusions stated in the notice, and (ii) in the case of a return for the wrong period, to make it a return appropriate to the designated period.” (i) to give effect to the conclusions stated in the notice, and (ii) in the case of a return for the wrong period, to make it a return appropriate to the designated period.”
“(6) If, on an appeal notified to the tribunal, the tribunal decides— (a) that, ... , the appellant is overcharged by a self-assessment; (b) that, ... , any amounts contained in a partnership statement are excessive; or (c) that the appellant is overcharged by an assessment other than a self-assessment, the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good. (7) If, on an appeal notified to the tribunal, the tribunal decides— (a) that the appellant is undercharged to tax by a self-assessment ... ; (b) that any amounts contained in a partnership statement ... are insufficient; or (c) that the appellant is undercharged by an assessment other than a self-assessment, the assessment or amounts shall be increased accordingly.” (a) that, ... , the appellant is overcharged by a self-assessment; (b) that, ... , any amounts contained in a partnership statement are excessive; or (c) that the appellant is overcharged by an assessment other than a self-assessment, the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good. (a) that the appellant is undercharged to tax by a self-assessment ... ; (b) that any amounts contained in a partnership statement ... are insufficient; or (c) that the appellant is undercharged by an assessment other than a self-assessment, the assessment or amounts shall be increased accordingly.”
“(1) This paragraph applies to an amount stated in a company tax return for an accounting period which is required to be included in the return and which affects or may affect— (a) the tax payable by the company making the return for another accounting period, or (b) the tax liability of another company for any accounting period. (2) If such an amount can no longer be altered it is taken to be conclusively determined for the purposes of the Corporation Tax Acts in relation to that other period or other company. Sub-paragraphs (3) to (5) explain what is meant by can no longer be altered. (3) An amount is regarded as one that can no longer be altered if— (a) the period specified in paragraph 15(4) (general period for amendment by company) has ended, (b) any enquiry into the return has been completed ... , (c) if an officer of Revenue and Customs amends the return under paragraph 34, the period within which an appeal may be brought against that amendment has ended, and (d) if an appeal is brought, the appeal has been finally determined.” (a) the tax payable by the company making the return for another accounting period, or (b) the tax liability of another company for any accounting period. Sub-paragraphs (3) to (5) explain what is meant by can no longer be altered. (a) the period specified in paragraph 15(4) (general period for amendment by company) has ended, (b) any enquiry into the return has been completed ... , (c) if an officer of Revenue and Customs amends the return under paragraph 34, the period within which an appeal may be brought against that amendment has ended, and (d) if an appeal is brought, the appeal has been finally determined.”
“when HMRC issued the closure notices which are the subject of this appeal, they sent a covering letter which set out an alternative analysis of [the appellant companies’] tax affairs which would in fact lead to more tax being due than was asserted by the adjustment to the figures in the tax returns. The case law makes clear and the Appellants accept that HMRC can put forward different legal arguments which support the making of the adjustment contained in the closure notice and can rely before the tribunal on alternative ways of justifying a particular adjustment to the figures in the tax return. At issue here is whether HMRC can put forward alternative adjustments to the figures; one adjustment which is included in the closure notice but then also alerting the taxpayer to HMRC’s possible future reliance on an alternative construction of the law which would lead to a figure being included in the taxpayer's return which is different both from the figure that the taxpayer included when it lodged the tax return and from the adjustment figure that HMRC included in the closure notice. The Appellants accept that they were given adequate notice of the alternative analysis and that there was no procedural unfairness to them in letting HMRC rely on the alternative point. But they say on the proper construction of the statutory provisions governing the issue of closure notices and the jurisdiction of the FTT on an appeal challenging a closure notice, it is not open to HMRC to argue for a different adjustment from the one made by the closure notice.”
“[70] I accept the point made by the Appellants that this case is different from the Tower MCashback and Fidex cases [i.e. Tower MCashback LLP 1 v Revenue and Customs Commissioners[2011] UKSC 19 ,[2011] 2 AC 457 and Fidex Ltd v Revenue and Customs Commissioners[2016] EWCA Civ 385 ,[2016] STC 1920 ] because Issue 4 is not a different argument in support of the adjustments made to their tax returns to implement the conclusion set out in the closure notices. I would also go part of the way with the Appellants in accepting that the FTT does not have an unlimited discretion when determining what is ‘the matter to which an appeal relates’ for the purposes of s 49I(1)(a) TMA or ‘the matter in question’ for the purposes of s 49G(4) TMA. In their covering letter HMRC could have indicated that they might open up entirely different areas of the Appellants’ tax returns if the closure notice were appealed to the tribunal. The fact that the Appellants had been warned about those potential challenges being raised would not, in my view, empower the FTT to treat those issues as within the scope of the appeal. According to para 34(3) of Sch 18 FA 1998, an appeal may be brought against an amendment of a company’s return. It seems to me that ‘the matter to which an appeal relates’ for the purposes of s 49I(1)(a) must be that amendment and the amendment is therefore the ‘matter in question’ which the tribunal is required to determine by s 49G(4) TMA. That then restricts the ambit of the appeal at the conclusion of which the tribunal may decide that there has been an overcharge or an undercharge and so make a reduction or an increase in the assessment pursuant to s 50(6) or (7) as appropriate. There is a limit on the jurisdiction of the FTT which is not simply a matter of ensuring procedural fairness. Any purported exercise by the FTT of a broader power to consider matters beyond that would be an error of law. [71] The authorities do not support a narrow construction of those key phrases in ss 49I and 49G and they establish that the FTT is the appropriate stage at which the scope of the matter in question in the appeal is to be determined. The FTT is a specialist tribunal and an appellate court should not interfere with that decision unless it is clearly outside the scope of the statutory provisions. There are, as Moses LJ recognised, likely to be boundary issues whatever the test to be applied. Those issues are much more likely to be problematic and time-consuming if a narrow view is adopted. This became apparent during argument when trying to establish the limits of any appeal in this case. Mr Peacock [i.e. counsel for the appellants] had to accept that legal arguments can be deployed which were not referred to in the closure notice. He also had to accept that the outcome of any particular appeal may be that the tax liability is something different from the figure for which either side was contending if, as in the present case, the tribunal accepts some but not all of one party’s arguments. He insisted however that the taxpayer should be able to challenge a closure notice without taking the risk that he would end up paying more tax than the adjustment made by the closure notice. That cannot be right, not least because as Mr Peacock was pushed to submit, it might lead to a situation where HMRC considered there were two possible constructions of the relevant legislation and were forced to adopt a closure notice based on the construction that resulted in the most tax being payable, even if they thought the arguments in support of that construction were far weaker than the arguments in favour of the construction leading to a lower adjustment. Such a construction of the provisions would simply multiply the number of appeals. [72] The possibility of HMRC putting forward a case on appeal seeking a greater tax liability than that set out in the closure notice does not create an unfair imbalance between the interests of the Revenue and the taxpayer. Tower MCashback and D'Arcy [i.e. D’Arcy v Revenue and Customs Commissioners [2006] STC (SCD) 543] show that despite the major change to tax law when the self-assessment regime was introduced and the importance of the finality of the self-assessment, the statutory provisions are not intended dramatically to narrow the scope of appeals. There are other checks and balances in the scheme here designed to protect the taxpayer. Those protections are the time limit imposed on HMRC in opening an enquiry, the fact that only one enquiry can be opened into any one tax return and the ability of the taxpayer to seek a direction for the issue of a closure notice. A narrow confinement of the subject matter of the appeal is not intended to be one of the protections conferred on the taxpayer. The ‘venerable principle’ [i.e. the principle of tax law to the general effect that there is a public interest in taxpayers paying the correct amount of tax – see paragraph 60 of Rose LJ’s judgment] is also an important underlying factor in any tax matter. I accept HMRC’s submission that proceedings before the FTT are not simply a dispute between two private parties and the venerable principle has a role to play here as the courts have found in the three cases which were cited to us. [73] I would conclude that the description of the scope of the matter in question in para [117] of the FTT’s decision is a useful and practical one. It is for the First-tier Tribunal to decide what the subject matter of the closure notice is within the bounds I have described. They are best placed to determine whether the context of the closure notice and the surrounding circumstances demonstrate that the subject matter is broader than the particular conclusion and adjustments addressed in the closure notice. If that is the case, it should be open to HMRC to put forward arguments in any appeal even if they result in a larger amount of tax being due, provided that the different arguments all deal with the same matters in question identified in the closure notice. Although it is accepted that this case goes beyond the point decided in Tower MCashback and Fidex, I do not regard those cases as requiring a bright line to be drawn. I would therefore dismiss the Appellants’ appeal on Issue 3.”
“the matter to which an appeal relates” and “matter in question”
“is the expenditure related to the plant and machinery?”
“The words ‘undercharged to tax by…’ in s50 TMA suggest the consideration is not just about correctness of the amounts which HMRC have amended but the impact of those amounts on the tax charged. In the case of a self-assessment the tribunal can amend parts of the return to give effect to its view the self-assessment undercharged (provided those parts of the return are within the scope of the appeal under principles discussed above). As applied to appeals against amendments, similarly the concern is not necessarily restricted to adjusting the given amendment up or down but can extend to those parts of the return which are consequential to the subject matter of the closure notice conclusion. Importantly, the key part of the legislation providing the scope for the purposive construction we consider is required is contained in s48(2)(a) TMA. That section provides that where there is an appeal other than an appeal against an assessment, the TMA appeal provisions have effect ‘subject to any necessary modifications’. In this case this means that one does not simply substitute the word self-assessment with ‘amendment’. Instead, the statutory rules are modified to bring them into line with the position for appeals against self-assessments. In doing so the venerable principle is given effect: the Tribunal is given the power to make the consequential amendments required for the taxpayer to pay the right amount of tax. However, for the reasons we have explained above, the modification does not mean that the Tribunal can amend any part of the return; it must be a part of the return which was consequential to the closure notice conclusions as construed by the FTT within the limits discussed above.”