Perenco UK Limited v The Commissioners for HMRC [2026] UKFTT 1096 (TC)

[2026] UKFTT 01096 (TC)Case No TC 09965
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 12-14 May 2026Date Judgment date: 28 July 226
Taylor House, London
Appeal reference: TC/2024/03181
CORPORATION TAX – section 11 of the Capital Allowances Act 2001 (“CAA 2001”) – whether conditions in subsection (4) are met – yes – sections 45F and 45G of CAA 2001 – whether purpose was wholly for use in a ring fence trade and actually used for that purpose and no other purpose – yes – sections 197 and 198 of CAA 2001 – whether the tax advantage was a main purpose – no – appeal allowed
Before
TRIBUNAL JUDGE MICHAELA SNELDERSCATHERINE FARQUHARSON
Between
PERENCO UK LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentJonathan Peacock KC and Sarah Black of counsel, instructed by Herbert Smith Freehills Kramer LLP for AppellantLaura Poots KC, Edward Waldegrave and Joshua Stevens of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for RespondentsDECISION

Introduction

[1]Perenco UK Limited (“PUK”) is appealing against closure notices issued by the Respondents (“HMRC”) in respect of accounting periods ending 31 December 2011, 31 December 2012 and 31 December 2013. The closure notices refuse PUK’s First Year Capital Allowances claim for expenditure in 2011 on plant and machinery, which it subsequently sold within the same period.[2]The closure notices are each dated 28 July 2023 and have the effect of increasing the corporation tax payable by PUK by a total of £39,085,004.50.[3]HMRC also issued penalty assessments to PUK in the sum of £6,805,161.39 on 28 July 2023 for carelessness in producing and filing the relevant self-assessment returns. However, HMRC subsequently withdrew these penalty assessments and the Tribunal endorsed a direction that PUK’s appeal against the penalty assessments is allowed. The penalty assessments therefore no longer form part of this appeal.

The Evidence, background and facts

[4]The parties have helpfully provided a statement of agreed facts. Jonathan Brian Parr (“Mr Parr”), general counsel of the Perenco Group since April 2015 and a director of PUK since February 2010, provided a written witness statement together with exhibits, gave oral evidence at the hearing and was cross-examined by Ms Poots KC. We were also provided with a hearing bundle of 4003 pages.[5]HMRC submit that Mr Parr’s evidence is of limited value because he wasn’t part of the negotiating team for the agreements with which this appeal is concerned and he was not a decision maker. Consequently HMRC say that Mr Parr is not in a position to provide evidence on PUK’s purpose during those negotiations and in entering into those agreements. Particularly, HMRC contend, where Mr Parr’s evidence conflicts with the contemporaneous documents, those documents should be preferred over Mr Parr’s evidence.[6]Having considered Mr Parr’s written and oral evidence and the surrounding documentary evidence we find that, while he was not formally part of the negotiating team, he was sufficiently close to the negotiations and the decision makers to have a reliable insight and understanding of the intentions of PUK at the time. Mr Parr was also on the board and chaired board meetings where the relevant agreements were discussed and decided upon. We find that Mr Parr’s evidence does not directly conflict with any of the documentary evidence that we were referred to.[7]Based on the statement of agreed facts, Mr Parr’s written and oral evidence and the documentary evidence in the hearing bundle we make the following findings of fact on the usual civil standard of a balance of probabilities.

Background and the BP Interest

[8]PUK is part of the Perenco Group which is a privately owned business whose core business is to acquire mature hydrocarbon assets and operate them.[9]PUK carried on a ring fence trade (“RFT”) for the purposes of section 45F of the Capital Allowances Act 2001 (“CAA 2001”) during the accounting periods ending 31 December 2011 to 31 December 2013.[10]Wytch Farm and Wareham oilfields are onshore oilfields in southern England (“the Onshore Oilfields”). Until 2011, BP Exploration Operating Company Limited (“BPEOC”) and ARCO British Limited (“ARCO”), both members of the BP corporate group (“BP Group”), owned approximately 67.5% of the Onshore Oilfields.[11]The largest minority interest in the Onshore Oilfields was held by Premier Oil UK Limited (“Premier”), which owned approximately 12.5%. The smaller minority interests were held by Maersk Oil North Sea UK Limited, Summit Petroleum Dorset Limited and Talisman North Sea Limited. The holders of the minority interests are together referred to in this decision as the Co-Participants.[12]The BPEOC/ARCO interest in the Onshore Oilfields comprised the following assets:(1) interests in three petroleum production licences (numbered P534, PL089 and PL259) covering the licence blocks in which the Onshore Oilfields are located (“the Licences”);(2) rights under a unitisation and unit operating agreement in respect of the Wytch Farm oilfield, which established the framework for the exploitation of the oilfield by the BP Group and the Co-Participants and appointed BPEOC as the operator of the oilfield (“the UOA”);(3) rights under a joint operating agreement and a joint venture operating agreement in respect of the Licences, which regulated the relationship between BPEOC/ARCO and their Co-Participants in respect of those blocks (“the JOAs”). Each JOA appointed BPEOC as the operator of the applicable Licence area;(4) numerous freehold, leasehold and other property interests relating to the Onshore Oilfields;(5) interests in various items of plant and machinery, being facilities for the production, gathering, processing, storage, transportation, loading and export of petroleum, including interconnecting pipelines (“the Field Facilities”); and(6) certain data relating to the assets referred to in (1)-(5) above.[13]As well as its interest in the Onshore Oilfields, BPEOC, together with various other companies within the BP Group, held a separate petroleum production licence (numbered ML5) in respect of the nearby Kimmeridge oilfield and owned plant and machinery associated with oil production there. BPEOC was also the operator of the Kimmeridge oilfield.[14]The totality of the assets described in paragraphs [‎12] and [‎13] above are referred to collectively in this decision as the BP Interest.[15]The Co-Participants had certain rights of pre-emption under the JOAs, whereby, if BPEOC/ARCO negotiated to sell their interests in Licence P534 and its associated JOA or Licence PL089 and its associated JOA to a third party, they were required to offer those interests for sale to the Co-Participants on the same terms and conditions as those that they were offering to the potential third-party purchaser.

The BASPA Transaction

[16]On 22 February 2011, the BP Group publicly announced its intention to dispose of the BP Interest. Negotiations followed between BPEOC/ARCO and PUK.[17]Within PUK, the Business Development (“BD”) team drove the commercial negotiations. Arthur de Fautereau and Jonathan Dent led the BD team and reported directly to the Group CEO, Jean-Michel Jacoulot. The ultimate decision maker was Francois Perrodo, the Chairman of the Perenco Group.[18]Mr Parr’s role was primarily legal advisory and as a member of the board. The board would in practice, and subject to their formal duties, approve transactions that were supported by the senior management and main shareholders.[19]Internally, tax structuring was handled separately by finance personnel and PUK obtained external tax advice from its adviser and tax agent, Deloitte LLP.[20]On 16 May 2011, the sale and purchase agreement in respect of the BP Interest between BPEOC, ARCO, certain other BP Group companies and PUK (“the BASPA”) was signed.[21]Under the BASPA, PUK contracted to purchase the whole of the BP Interest for Base Consideration (as defined therein) of US$555 million, subject to working capital and various other adjustments.[22]Approximately US$552 million of that base consideration was for an approximately 67.5% interest in the Onshore Oilfields.[23]By Clause 2.13 of the BASPA, PUK undertook to assume BPEOC's operatorship of the Onshore Oilfields and Kimmeridge oilfield, which included taking responsibility for some sixty employees involved in petroleum production there. On the same day of signing, pursuant to Clause 3.3 of the BASPA, PUK paid a deposit of US$500 million in immediately available funds.[24]Thereafter, transition planning for PUK to assume BPEOC's operatorship of the three oilfields commenced. For PUK this included site visits, establishment of a multi-disciplinary transition team and co-ordination with BP across multiple workstreams. Mr Parr described the transition effort as “complex and intense”. The principal operational objective of the transition planning was to ensure continuous, uninterrupted oilfield production following completion of the BASPA.[25]Clause 2.3 of the BASPA provided that completion of the agreement was subject to various conditions precedent, including (Clause 2.3.3) the expiry or waiver of the Co-Participants' rights of pre-emption. Clause 2.11 provided that in the event of a valid exercise by a Co-Participant of any right of pre-emption, the BASPA would lapse.[26]Clause 2.12 provided that:(1) no purchase of BPEOC's interest in Licence P534 could occur without a corresponding purchase of its interests in Licences PL259 and ML5; and(2) no purchase of BPEOC's/ARCO's interest in Licence P534 could occur without a corresponding purchase of their interest in Licence PL089 (and vice versa).[27]Clause 17 of the BASPA provided that none of the rights or obligations of any party thereto was assignable without the prior written consent of the other parties.

Pre-emption Notices and Negotiations with Premier

[28]On 17 May 2011, as required by the JOAs, BPEOC/ARCO issued pre-emption notices to each of the Co-Participants. The pre-emption notices enclosed a copy of the BASPA and informed the Co-Participants that any Co-Participant that wished to exercise its rights of pre-emption would be required to pay a deposit of US$500 million and comply with all other terms and conditions of that agreement.[29]On 19 May 2011, the chief executive of Premier informed the chief executive of PUK that Premier intended to exercise its rights of pre-emption under the JOAs. Negotiations between PUK and Premier thereafter commenced.[30]PUK entered those negotiations partly because it considered that there was a real risk that Premier would exercise its pre-emption right but also because even if Premier was not ultimately able to make a valid pre-emption, it posed a litigation risk of either challenging the validity of the pre-emption notice or purporting to make a valid pre-emption, either of which would be costly and cause delay, even if ultimately unsuccessful.[31]On 27 May 2011, PUK made an offer to each of the Co-Participants (including Premier) to buy their minority interests in the Onshore Oilfields on terms similar to those contained in the BASPA.[32]On 31 May 2011, Premier rejected PUK's offer and made a counter-offer to acquire from PUK "a 27.7 per cent interest in the Wytch Farm Unit" following completion of the BASPA.[33]An internal email exchange dated 1 June 2011 between Mr Parr, Mr Dent and Jonathan Day (who assisted Mr Parr on the legal aspects of the negotiations) concerning the counter offer made by Premier on 31 May 2011 evidences a discussion within PUK concerning Premier’s proposal. In this email Mr Dent explained that Premier proposed to acquire an approximately 28% interest in the Wytch Farm oilfield for approximately US$143 million. Mr Parr queries:
“how is that offer pro rata? Wouldn’t a 28 percent interest pro rata our 67percent/550M bid be about 220Mish ? What’s the plan?”
[34]Mr Dent replies:
“They want to pay 26% of the consideration for 40% of the deal by not acquiring any P&Ms and leaving us to pay now for them all and collect later through the tax man. Win-Win – hmmmm........” hmmmm........”
[35]Mr Parr responds as follows:
“Suspected P and Ms came into it but there's only one clear "win" there - are we pushing back?”
[36]On 3 June 2011, PUK made a further counter-offer to sell to Premier an interest of approximately 17.7 per cent in Wytch Farm following completion of the BASPA.[37]Subsequently on 6 June 2011 there was an internal PUK email from Steven Savage, who was responsible internally for the tax aspects of the deal, in which he explains that Deloitte LLP had advised that, provided certain conditions were met, Premier’s proposal could be achieved by making a section 198 election.[38]On 16 June 2011, Premier wrote to BPEOC/ARCO purporting to activate its pre-emption rights over either:(1) all of BPEOC's and ARCO's interests in Licences P534 and PL089, subject to agreement being reached between it and any other pre-empting Co-Participant(s) to divide those interests between them; or(2) over ARCO's interests in Licences P534 and PL089 and a small fraction of BPEOC's interests in the same Licences.[39]In the opinion of the BP Group and of PUK, Premier's letter did not amount to a valid activation of its pre-emption rights, and Premier did not ultimately pursue that contention.

The POSPA Transaction

[40]Further negotiations between PUK and Premier culminated in the signing of a sale and purchase agreement in respect of a minority interest in the Onshore Oilfields on 19 June 2011 (“the POSPA”).[41]Under the POSPA, PUK contracted to sell to Premier an interest of approximately 17.9 per cent in Licences P534 and PL089, the UOA, JOAs and associated assets, which equated to approximately 17.2% of the Onshore Oilfields (“the POSPA Interest”), for Base Consideration (as defined therein) of US$96 million. The Base Consideration was subject to working capital and various other adjustments. The POSPA Interest includes approximately 17.2 per cent of the Field Facilities (“the Disputed Field Facilities”).[42]The transaction implemented by the POSPA did not encompass certain constituents of the BP Interest such as Licence PL259, the Kimmeridge oilfield or the property interests relating to the Onshore Oilfields. Completion of the POSPA was subject to various conditions precedent, including the completion of the BASPA.[43]Premier paid PUK a deposit of US$86.5 million in immediately available funds on 19 June 2011.[44]On a pro rata basis to the amount paid by PUK for its interest in the Onshore Oilfields under the BASPA, the base consideration that would have been payable by Premier to PUK for a circa 17% interest in the Onshore Oilfields was in the region of US$139 million. However the base consideration actually paid by Premier to PUK under the POSPA was only US$96 million.[45]We find that the shortfall was addressed by Premier and PUK making an election pursuant to section 198 of the CAA 2001 that fixed the amount of the sale price that was to be treated for the purposes of Part 2 of the CAA 2001 as expenditure incurred by Premier on the provision of the Field Facilities at US$2 (“the Election”). The Election resulted in PUK retaining the benefit of the capital allowances in the Disputed Field Facilities, which had economic value to PUK, even though the ownership of the Disputed Field Facilities actually transferred to Premier.[46]We accept Mr Parr’s evidence, as supported by the contemporaneous email exchange, that Premier first suggested that PUK retain the capital allowances as a mechanism to meet Premier’s pricing constraints. The Election was not sought by PUK for its own sake. PUK accepted the Election in satisfaction of part of the pro-rata consideration because it considered Premier was unlikely to be able to pay the full pro rata consideration in cash and it wanted to do a deal with Premier to avoid the litigation risk referred to in paragraph [‎30] above.[47]We find that PUK regarded the retained capital allowances as having sufficient economic value to justify foregoing approximately US$43 million in cash consideration. By making the Election, PUK considered itself financially in a substantially similar position to that which it would have been had Premier paid the full pro rata amount and the Election had not been made.[48]PUK sought and obtained as part of the POSPA, an indemnity from Premier against risks if the Election proved ineffective. This was PUK’s standard commercial practice with respect to tax risks.

Completion and Capital Allowances

[49]Completion of the BASPA occurred on 14 December 2011.[50]Completion of the POSPA occurred on 20 December 2011.[51]BPEOC and ARCO had historically claimed capital allowances in respect of qualifying expenditure incurred by them on the Field Facilities. Schedule 2 to the BASPA recorded that of the US$555 million Base Consideration payable thereunder, US$388 million was apportioned to "plant and machinery relating to the Interests," which included US$386 million allocated to the Field Facilities.[52]By Clause 13.1 of the BASPA, BPEOC/ARCO undertook to submit their corporation tax returns on the basis that "the said allocated expenditure on plant and machinery is disposal proceeds for the purposes of sections 60 and 61 of the [CAA 2001]." PUK undertook to "treat such amount and only such amount as capital expenditure incurred for the purposes of Part II of the [CAA 2001]."[53]It is understood that BPEOC and ARCO submitted their corporation tax returns for the period in which completion of the BASPA occurred on the basis that the US$386 million apportioned to the Field Facilities by Schedule 2 of the BASPA was their disposal value for the purposes of section 196 of the CAA 2001. Clause 13.7 of the BASPA provided for a situation in which "HMRC disputes and does not agree the allocation of Base Consideration as recorded in Schedule 2." In those circumstances, BPEOC/ARCO and PUK undertook that they would "jointly negotiate an allocation acceptable to HMRC." No negotiations such as were envisaged by Clause 13.7 of the BASPA ever took place.[54]By Clause 13.35 of the POSPA, PUK and Premier agreed to enter into the Election at completion of the agreement.[55]Schedule 11 to the POSPA set out the form of the Election. The Election was made and its form and the manner in which it was notified to HMRC satisfied the requirements contained in section 201 of the CAA 2001.[56]Deloitte LLP prepared, and with PUK's approval, submitted PUK's corporation tax return for its accounting period ending 31 December 2011 on the basis that PUK incurred in that period for the purposes of section 45F of the CAA "first-year qualifying expenditure" of £250.4 million (“the Apportioned Amount”) on the provision of the Field Facilities, being the sterling equivalent of the US$386 million allocated to the Field Facilities by Schedule 2 of the BASPA.

Economic Date Provisions

[57]The BASPA and the POSPA contained provisions allocating economic benefits and obligations by reference to an “Economic Date” of 1 January 2011 and requiring the purchaser to assume risk from the date of the agreement[58]Clause 7.2 in both contracts provides as follows:
“The Purchaser shall be liable for all Obligations in respect of the Interests which accrue in or relate to any period on or after the Economic Date and the Purchaser shall be entitled to all Benefits in respect of the Interests which accrue in or relate to any period on or after the Economic Date.”
[59]The Economic Date is defined in both the BASPA and the POSPA as:
“00:01 hours (London time) on 1 January 2011”
[60]Clause 7.7 of both the BASPA and the POSPA provides that: “Notwithstanding any other provisions in this Agreement and that title to the Interests will not pass until Completion, with effect from the date of this Agreement, the Purchaser shall assume all risk in relation to the Interests, shall take out insurance to cover all such risks (with no access to any insurance which the Seller or its Affiliates may have)…” (underline added)[61]On completion of the POSPA therefore, Premier was entitled to all the benefits and was liable for all the obligations relating to the POSPA Interest backdated to 1 January 2011. PUK was able to comply with this clause because under the BASPA it was entitled to all the benefits and liable for all the obligations relating to the BP Interest from 1 January 2011.[62]We accept Mr Parr’s evidence that these clauses reflected a standard oil and gas industry pricing mechanism. Mr Parr explained in his written witness statement as follows:
“the agreement provided for the final consideration to be adjusted by reference to an "economic date" of 1 January 2011 . This is a standard pricing model for acquisitions in the oil and gas industry, and may be analogized to the "locked box" concept that is often used for company acquisitions. In both cases, the parties agree an upfront price for the asset based on a "snapshot" of known and projected data as ascertained at an earlier point in time (in the hydrocarbons sector, the date chosen is almost invariably 1 January or 1 July, depending on where in the financial cycle the transaction takes place). The final price is then adjusted at completion to take account of such variables as movements in the level of working capital since the economic date, investment incurred by the seller and receipts from petroleum sales ….. Pricing by reference to a prior "economic date" is commonplace in our industry for several reasons, primarily financial certainty, facilitation of the necessary adjustments, alignment with the parties' year ends and consistency across transactions. To mitigate risk to the buyer, it is customary for the seller to provide undertakings (known as "interim covenants") that it will operate the asset in the ordinary course of business between the signing of the agreement and completion”
[63]We find that in neither agreement did clause 7 backdate the legal or beneficial ownership of the interest being transferred. The use of an Economic Date of 1January 2011 instead operated as part of the agreed pricing and risk-allocation structure. The buyers were required to insure the interest being transferred from the date of the contract but this does not have any impact on the legal or beneficial ownership of the interests being transferred. This is reinforced by the express contractual wording in clause 7.7 (see paragraph [‎60] above):
“Notwithstanding … that title to the Interests will not pass until Completion”

Closure Notice

[64]By a closure notice dated 28 July 2023, HMRC amended PUK's corporation tax return for its accounting period ending 31 December 2011 by reducing the amount of qualifying expenditure on the Field Facilities from £250.4 million to £185 million.[65]The resulting disputed amount is £65.4 million (“the Disputed Expenditure”).[66]Also on 28 July 2023, HMRC issued PUK with closure notices for its accounting periods ending 31 December 2012 and 31 December 2013 imposing additional amounts of corporation tax resulting from the reduced qualifying expenditure in the period ending 31 December 2011 of £4.3 million and £36.7 million respectively (these figures were amended by HMRC on 26 September 2023 to £4.2 million and £34.9 million).[67]We make further findings of fact that relate to specific issues for determination in the body of this decision.

The legislative framework

[68]All references to sections in this decision are references to sections of the CAA 2001 unless otherwise stated.[69]Section 11 sets out the general conditions that need to be satisfied for plant and machinery allowances to be available under Part 2 of the CAA 2001 as follows: “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.(2) “Qualifying activity” has the meaning given by Chapter 2.(3) Allowances under this Part must be calculated separately for each qualifying activity which a person carries on.(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, and (b) the person incurring the expenditure owns the plant or machinery as a result of incurring it.(5) But the general rule is affected by other provisions of this Act, and in particular by Chapter 3.” (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.[70]For the period ending 31 December 2011, 100% first-year allowances were available in respect of certain types of first-year qualifying expenditure pursuant to section 52 which provides as follows: “52 First-year allowances(1) A person is entitled to a first-year allowance in respect of first-year qualifying expenditure if— (a) the expenditure is incurred in a chargeable period to which this Act applies, and (b) the person owns the plant or machinery at some time during that chargeable period.(2) Any first-year allowance is made for the chargeable period in which the first-year qualifying expenditure is incurred.(3) The amount of the allowance is a percentage of the first-year qualifying expenditure in respect of which the allowance is made, as shown in the Table—” (a) the expenditure is incurred in a chargeable period to which this Act applies, and (b) the person owns the plant or machinery at some time during that chargeable period.[71]The Table referred to provides that for first-year qualifying expenditure pursuant to section 45F, the first-year allowance is 100%.[72]Section 45F provides for expenditure on plant and machinery for use wholly in a ring fence trade to be first-year qualifying expenditure as follows: “45F Expenditure on plant and machinery for use wholly in a ring fence trade(1) Expenditure is first-year qualifying expenditure if— (a) it is incurred on or after 17th April 2002, (b) it is incurred by a company, (c) it is incurred on the provision of plant or machinery for use wholly for the purposes of a ring fence trade, and (d) it is not excluded by section 46 (general exclusions).(2) This section is subject to section 45G (plant or machinery used for less than five years in a ring fence trade).(3) In this section “ring fence trade” means a ring fence trade in respect of which tax is chargeable under section 330(1) of CTA 2010 (supplementary charge in respect of ring fence trades).” (c) it is incurred on the provision of plant or machinery for use wholly for the purposes of a ring fence trade, and[73]Section 45F is subject to section 45G, the relevant parts of which provide: “45G Plant or machinery used for less than five years in a ring fence trade(1) Expenditure incurred by a company on the provision of plant or machinery is to be treated as never having been first-year qualifying expenditure under section 45F if the plant or machinery— (a) is at no time in the relevant period used in a ring fence trade carried on by the company or a company connected with it, or (b) is at any time in the relevant period used for a purpose other than that of a ring fence trade carried on by the company or a company connected with it.(2) For the purposes of this section “the relevant period” means whichever of the following periods, beginning with the incurring of the expenditure, first ends, namely— (a) the period ending with the fifth anniversary of the incurring of the expenditure, or (b) the period ending with the day preceding the first occasion on which the plant or machinery, after becoming owned by the company which incurred the expenditure, is not owned by a company which is either that company or a company connected with it. … (6) In this section “ring fence trade” has the same meaning as in section 45F.” (a) is at no time in the relevant period used in a ring fence trade carried on by the company or a company connected with it, or (b) is at any time in the relevant period used for a purpose other than that of a ring fence trade carried on by the company or a company connected with it. (a) the period ending with the fifth anniversary of the incurring of the expenditure, or (b) the period ending with the day preceding the first occasion on which the plant or machinery, after becoming owned by the company which incurred the expenditure, is not owned by a company which is either that company or a company connected with it.[74]The charge in section 330(1) of the Corporation Tax Act 2010 (CTA 2010) applies to a ring fence trade (“RFT”) as defined in section 277 CTA 2010, being:
“activities which – (a) are within the definition of ‘oil-related activities’ in section 274, and (b) constitute a separate trade (whether because of section 279 or otherwise)”
[75]It is common ground between the parties that PUK carried out a RFT at the Onshore Oilfields from completion of the BASPA.[76]Section 270 provides that reference to plant and machinery in Part 2 of the CAA 2001 includes shares in plant and machinery as follows:
“270 Shares in plant or machinery (1) This Part applies in relation to a share in plant or machinery as it applies (under section 571) in relation to a part of plant or machinery. (2) For the purposes of this Part, a share in plant or machinery is treated as used for the purposes of a qualifying activity so long as, and only so long as, the plant or machinery is used for the purposes of the qualifying activity.”
[77]Section 571 provides that reference to plant and machinery includes parts of plant and machinery as follows:
“571 Application of Act to parts of assets (1) In this Act references to an asset of any kind (including a building or structure, plant or machinery or works) include a part of an asset. (2) But subsection (1) does not apply if the context otherwise requires.”
[78]Section 562 applies where multiple items of “property” are sold together and allows for a just and reasonable apportionment of the consideration as follows:
“562 Apportionment where property sold together (1) Any reference in this Act to the sale of property includes the sale of that property together with any other property. (2) For the purposes of subsection (1), all property sold as a result of one bargain is to be treated as sold together even though— (a) separate prices are, or purport to be, agreed for separate items of that property, or (b) there are, or purport to be, separate sales of separate items of that property. (3) If an item of property is sold together with other property, then, for the purposes of this Act— (a) the net proceeds of the sale of that item are to be treated as being so much of the net proceeds of sale of all the property as, on a just and reasonable apportionment, is attributable to that item, and (b) the expenditure incurred on the provision or purchase of that item is to be treated as being so much of the consideration given for all the property as, on a just and reasonable apportionment, is attributable to that item. ……” (a) separate prices are, or purport to be, agreed for separate items of that property, or (b) there are, or purport to be, separate sales of separate items of that property. (a) the net proceeds of the sale of that item are to be treated as being so much of the net proceeds of sale of all the property as, on a just and reasonable apportionment, is attributable to that item, and (b) the expenditure incurred on the provision or purchase of that item is to be treated as being so much of the consideration given for all the property as, on a just and reasonable apportionment, is attributable to that item. ……”
[79]Where a “disposal event” occurs in relation to plant and machinery, a taxpayer is required to bring the disposal value of that plant and machinery into account under section 61. If the disposal event relates to fixtures, and it is common ground between the parties that the Field Facilities are fixtures, section 196(1) provides:
“the disposal value to be brought into account in relation to the fixture depends on the nature of the disposal event, as shown in the Table -”
[80]Item 1 of that table provides that where the disposal event is a sale at market value the disposal value is the part of the sale price that: “(a) falls to be treated for the purposes of this Part as expenditure incurred by the purchaser on the provision of the fixture, or (b) would fall to be so treated if the purchaser were entitled to an allowance”.[81]Section 196(3) provides however that item 1 of that table is subject to section 198 which allows for a joint election to fix apportionment as follows:
“198 Election to apportion sale price on sale of qualifying interest (1) This section applies if the disposal value of a fixture is required to be brought into account in accordance with item 1 of the Table in section 196 (sale of qualifying interest at not less than market value, etc.). (2) The seller and the purchaser may jointly, by an election, fix the amount that is to be treated— (a) for the purposes of item 1 of the Table, and (b) for the other purposes of this Part, as the part of the sale price that is expenditure incurred by the purchaser on the provision of the fixture. (3) The amount fixed by the election must not exceed— (a) the amount of the capital expenditure which was treated as incurred by the seller on the provision of the fixture or of the plant or machinery which became the fixture, or (b) the actual sale price. (4) If an election fixes the amount to be treated as the part of the sale price— (a) the remaining amount (if any) of the sale price is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and (b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil. (5) This section is subject to— (a) sections 186 and 187 (fixtures on which industrial buildings allowance or research and development allowance has been made), (b) section 197 (disposal values in avoidance cases), and (c) sections 200 and 201 (further provisions about elections).” (a) the amount of the capital expenditure which was treated as incurred by the seller on the provision of the fixture or of the plant or machinery which became the fixture, or (b) the actual sale price. (a) the remaining amount (if any) of the sale price is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and (b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil. (a) sections 186 and 187 (fixtures on which industrial buildings allowance or research and development allowance has been made), (b) section 197 (disposal values in avoidance cases), and (c) sections 200 and 201 (further provisions about elections).”
[82]As stated at section 198(5)(b), section 198 is subject to section 197, which provides as follows: “197 Disposal values in avoidance cases(1) This section applies if— (a) a person (“the taxpayer”) is treated under this Chapter as the owner of any plant or machinery as a result of incurring any expenditure, (b) any disposal event occurs in relation to the plant or machinery, (c) the disposal value to be brought into account by the taxpayer would (but for this section) be less than the notional written-down value of the plant or machinery, and (d) the disposal event is part of, or occurs as a result of, a scheme or arrangement the main purpose or one of the main purposes of which is the obtaining by the taxpayer of a tax advantage under this Part.(2) The disposal value that the taxpayer must bring into account is the notional written-down value of the plant or machinery.(3) The notional written-down value is— QE – A where— QE is the taxpayer's expenditure on the plant or machinery that is qualifying expenditure, A is the total of all allowances which could have been made to the taxpayer in respect of that expenditure if— (a) that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure, and (b) all allowances had been made in full.” (a) a person (“the taxpayer”) is treated under this Chapter as the owner of any plant or machinery as a result of incurring any expenditure, (b) any disposal event occurs in relation to the plant or machinery, (c) the disposal value to be brought into account by the taxpayer would (but for this section) be less than the notional written-down value of the plant or machinery, and (d) the disposal event is part of, or occurs as a result of, a scheme or arrangement the main purpose or one of the main purposes of which is the obtaining by the taxpayer of a tax advantage under this Part. QE – A where— (a) that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure, and

Issues in dispute

[83]PUK claims that it is entitled to 100% first-year capital allowances for its entire expenditure on the Field Facilities, which is the sterling equivalent of the US$386 million allocated to the Field Facilities by Schedule 2 of the BASPA at the relevant rate of exchange.[84]HMRC contend that PUK is not entitled to capital allowances in respect of the Disputed Expenditure because it does not meet the conditions of sections 11, 45F and 45G or in the alternative, if it does meet the conditions of section 11, but not sections 45F or 45G, section 197 overrides the Election.[85]It is common ground between the parties that:(1) the Field Facilities are “plant and machinery” which constitute “fixtures” as defined in section 173 for the purpose of chapter 14 of part 2;(2) the Disputed Expenditure is “capital expenditure” as defined in section 4;(3) PUK carried on a “qualifying activity” of oil-related activities which was its RFT and a separate qualifying activity under section 162;(4) PUK is therefore entitled to first-year capital allowances under section 45F insofar as its expenditure under the BASPA was referable to the plant and machinery that it retained following completion of the POSPA;(5) An amount equating to PUK’s entire expenditure on the Field Facilities under the BASPA would have been brought into account by BPEOC/ARCO as the disposal value for capital allowances purposes under section 196(1).[86]The issues for us to determine are therefore:(1) Whether the conditions set out in section 11(4) are satisfied in respect of the Disputed Expenditure;(2) If they are, does the Disputed Expenditure constitute “first-year qualifying expenditure” for the purpose of section 45F (leaving aside the effect of section 45G);(3) If so, whether section 45G applies to treat the Disputed Expenditure “as never having been first-year qualifying expenditure under section 45F”; and(4) Whether section 197 applies in relation to the Disputed Expenditure and, if so, what is its effect?[87]PUK bears the burden of proving the facts necessary to successfully appeal against the closure notices on the ordinary civil standard of a balance of probabilities.[88]All the issues raise questions of statutory interpretation. The principles of statutory interpretation were most recently articulated in Orsted West of Duddon Sands (UK) Ltd and others v Revenue and Customs Commissioners [2026] UKSC 12 (“Orsted”) at paragraph [73] as follows:
“73. The principles of statutory construction to be applied to arrive at the meaning of section 11(4) are not in dispute. They were summarised by Lord Hodge in R (O) v Secretary of State for the Home Department [2022] UKSC 3; [2023] AC 255 at paras 29 to 31. Words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of the section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained. Further, statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey in using the statutory words being considered.”

Issue 1 – Section 11(4)

[89]In order to meet the conditions of section 11(4) in relation to the Disputed Expenditure, PUK must establish that:(1) the Disputed Field Facilities were “wholly or partly for the purposes of” a qualifying activity carried on by PUK;(2) the Disputed Expenditure was “on the provision of plant or machinery”; and(3) PUK owned the Disputed Field Facilities as a result of incurring the Disputed Expenditure.

Time at which Purpose to be Determined

[90]Before we can determine the purpose of the expenditure, we must first identify the point in time at which that purpose is to be assessed.

PUK’s Submissions

[91]PUK submits that:(1) the relevant point in time is when the expenditure is unconditionally incurred. On that basis the purpose with respect to the US$500 million deposit under the BASPA must be determined on 16 May 2011, and the purpose of the balance of approximately US$55 million must be determined on 14 December 2011.(2) both the natural and purposive interpretation of section 11 require the purpose of the expenditure to be determined at the time that it is unconditionally incurred. PUK relies in this regard in part on section 5(1) which provides that capital expenditure is treated as incurred as soon as there is an unconditional obligation to pay it;(3) although the BASPA remained conditional when PUK paid the US$500 million, the payment itself was unconditional. Accordingly both sums were actually paid and treated as paid pursuant to section 5(1), on those respective dates;(4) the decision of IRC v Guthrie 1952 SC 402, 33 TC 327 (“Guthrie”) supports PUK’s position on timing. The facts of that case were that Mr Guthrie paid for a car intended for use in his trade, but due to fraud, he never acquired it. The Court of Session held that, Mr Guthrie’s failure to obtain ownership of the car, did not affect his purpose in incurring the expense. Guthrie therefore establishes that purpose of expenditure is to be assessed at the time it is incurred and is not affected by subsequent events;(5) PUK’s position on this is consistent with the overall statutory scheme of the CAA 2001 which provides for allowances in respect of expenditure, and for subsequent events to lead to an adjustment of the allowances otherwise available. For example, where there is a disposal event, such as occurred on 20 December 2011 pursuant to the POSPA when PUK transferred the Disputed Field Facilities to Premier, section 61 applies to require PUK to bring into account a “disposal value”. This demonstrates that the later event does not alter the original purpose of Disputed Expenditure and therefore the entitlement to allowances, but instead ascribes specific statutory consequences to the later event itself.

HMRC’s Submissions

[92]HMRC accepts that there was an unconditional obligation on PUK to pay the US$500 million deposit on 16 May 2011 but submits that section 11(4)(a) is concerned not just with “capital expenditure” in isolation but with “capital expenditure on the provision of plant or machinery”. Although the payment was unconditional on 16 May 2011, the BASPA itself was not and the US$500 million could have become repayable to PUK if the conditions precedent of the BASPA were not satisfied. The “purpose” should therefore be assessed by reference to all the facts up until the time that the BASPA became unconditional on 14 December 2011.[93]Further HMRC submits that PUK’s approach results in the purpose of the US$500 million deposit being assessed at a different time and potentially by reference to different facts, than that of the US$55 million balance, notwithstanding that both payments formed part of a single transaction for the same plant and machinery.

Our View

[94]We consider that the issue falls to be determined by reference to section 11(4) as a whole. Section 5(1) addresses when expenditure is incurred but it does not determine when the statutory conditions for qualifying expenditure are to be assessed.[95]Section 11(4) requires, among other things, that the expenditure is incurred on the provision of plant or machinery and that the person incurring the expenditure owns that plant or machinery as a result of incurring the expenditure (section 11(4)(b)). In our view these requirements must be read together. It follows that expenditure cannot constitute qualifying expenditure unless and until it results in the person owning the plant or machinery.[96]In this case, PUK’s payment of the US$500 million deposit did not result in PUK owning the Field Facilities. Ownership was only obtained when the conditions precedent were satisfied, PUK paid the balance of US$55 million and the BASPA completed on 14 December 2011.[97]In those circumstances we find that the purpose of the expenditure falls to be assessed at 14 December 2011, when the expenditure resulted in PUK owning the Field Facilities. That conclusion applies to both the initial deposit of US$500 million and the US$55 million balance which formed part of a single transaction that led to that outcome.[98]Prior to 14 December 2011, section 11(4)(b) was not satisfied. The expenditure could not therefore constitute qualifying expenditure, irrespective of its purpose at an earlier stage.[99]This conclusion is consistent with the overall statutory scheme of the CAA 2001. Section 61(1)(a) requires a person to bring the disposal value into account for the chargeable period in which:
“the person ceases to own the plant or machinery;”
[100]This presupposes that the person had owned the plant or machinery. There is no provision in section 61 for an adjustment in circumstances where ownership is never acquired because a conditional transaction does not complete and the incurred expense is repaid. This supports our conclusion that the legislation operates by reference to the point at which ownership is obtained, and therefore the purpose of the expenditure should be ascertained at that point also.[101]We do not consider that the decision in Guthrie assists PUK. The timing of the purpose test was not in issue in that appeal. Had the contract for purchase not been breached by the vendors, Mr Guthrie would have become the owner of the car when he incurred the expense. Further the statutory provision under consideration in Guthrie (section 15(1) of the Income Tax Act 1945), did not include an equivalent requirement to section 11(4)(b). It was therefore unnecessary for the expenditure incurred by Mr Guthrie to result in ownership of the car for him to qualify for the capital allowance.

Purpose

[102]Having established that the date on which the purpose is to be determined is 14 December 2011 we then move to consider what the purpose of the expenditure was at that time. In order to do this we consider that it is necessary to take into account all the relevant circumstances leading up to 14 December 2011 to establish the purpose of the expenditure incurred on 16 May 2011 and on 14 December 2011.[103]The difference between the parties on purpose is that PUK asserts that its purpose in incurring the Disputed Expenditure was wholly for its trade which is a qualifying activity, whereas HMRC assert that PUK’s purpose with respect to the Disputed Expenditure was to acquire assets to be sold on to a third party.[104]Mr Parr’s evidence on PUK’s purpose in incurring the Disputed Expenditure was that:(1) When PUK entered into the BASPA its purpose was to purchase the entire BP Interest and it was not interested in purchasing less than the entire BP Interest;(2) PUK agreed to provide a large deposit of US$500 million on signing the BASPA because it considered that this would make it less likely that any of the Co-Participants could exercise their pre-emption rights because to do so they would need to match that deposit. PUK considered it highly unlikely that any of the Co-Participants could raise that much money in cleared funds within the pre-emption period;(3) PUK only entered into negotiations with Premier because it thought that this was necessary to avoid Premier purporting to exercise its pre-emption right or challenging the validity of the pre-emption notice which, even if ultimately unsuccessful, would cause significant disruption, cost and delay.(4) Even when PUK entered into the POSPA with Premier, it still wished to own the full BP Interest including all the Field Facilities. Up until the POSPA completed on 20 December 2011, PUK was hopeful that Premier would be unable to provide an acceptable letter of credit, which was a condition precedent of the POSPA, and that the POSPA would not actually complete.(5) PUK has always wanted to secure as large an interest in the Onshore Oilfields as possible and this is further evidenced by the fact that it now owns 95% of them including all of Premier’s interest, which it purchased in December 2017.[105]HMRC submit that Mr Parr’s assertion that PUK was not interested in purchasing less than the whole BP Interest conflicts with an internal email correspondence dated 8 April 2011 in which Jonathan Dent summarised the points discussed at a meeting with BP and states:
“we said in principle we would still be OK at 50% and operatorship.”
[106]However in the context of the whole email we do not consider that this documentary evidence conflicts with Mr Parr’s evidence. The part of the email in which this statement was made is headed “Pre-emption” and reads:
“They were happy to help in any way to stop pre-emption. They wanted to understand in more detail what we meant when we said we only wanted all the assets and wouldn’t transact if part of the deal was pre-empted. They have written the SPA such that its an all or nothing transaction, but raised the point that the assets are held by two companies and there was a remote possibility that just the Arco share could be pre‐empted thus leaving us with only 50% and operatorship.”
[107]In this context we consider that Mr Dent’s statement quoted in paragraph [‎105] above accords with Mr Parr’s evidence that PUK always wanted to obtain the whole BP Interest. The email of 8 April 2011 merely demonstrates that in the context of existing pre-emption rights, PUK was willing to be commercially pragmatic so would settle for less provided it maintained control and operatorship. PUK’s desire at the time to obtain the whole BP Interest is further evidenced by its offer to all the Co-Participants to purchase their minority interest (see paragraph [‎31] above).[108]HMRC further submit that we should not equate what someone wished, wanted or hoped for with their purpose. They make the valid point that if someone takes steps to achieve something, the fact that they hoped it might fail cannot be said to be their purpose in taking those steps. There must be a recognition that a company's purpose operates in the real world and takes account of commercial obstacles and navigating those commercial obstacles might involve taking steps which are not exactly what one might have wanted but are still its purpose.[109]It follows in HMRC’s submission that even if PUK had wanted to secure the whole of the BP Interest as asserted by Mr Parr, by the time the BASPA completed on 14 December 2011, it had already committed to the POSPA and the commercial reality was therefore that the purpose of the Disputed Expenditure was to sell the Disputed Field Facilities on to Premier.[110]We find that PUK’s primary objective was to purchase and retain the whole BP Interest and if this was not possible then it wished to retain as much of the BP Interest as it was commercially able to do and it would walk away if this was less than a controlling interest and operatorship. We also find that the only reason it entered into the POSPA was that it considered that this was necessary to secure completion of the BASPA and prevent Premier disrupting or causing delay to that completion.[111]We agree with HMRC however that what PUK wished, wanted or hoped for does not equate to its purpose and cannot change the fact that it did enter into the POSPA and that by the time that the BASPA completed on 14 December 2011, it had committed to sell the Disputed Field Facilities to Premier, subject to Premier meeting the conditions precedent.[112]Both the BASPA and the POSPA had a number of conditions precedent to completion. One of the conditions precedent for the POSPA was completion of the BASPA. Another was that Premier must provide a suitable letter of credit. This latter condition precedent remained outstanding at the time of the completion of the BASPA and Mr Parr believed at that time that Premier may not be able to meet this condition precedent. A further condition precedent of the POSPA was that Premier had to make the payment of the balance of the base consideration of approximately US$9.5 million.[113]If Premier did not provide the letter of credit or make the final payment of US$9.5 million the POSPA would not complete. Further, the BASPA and POSPA were not back to back agreements. The final backstop date for the BASPA was 31 March 2012 and for the POSPA it was 31 December 2012. At the time of completion of the BASPA on 14 December 2011 it therefore remained a realistic commercial possibility that the POSPA may not complete until 31 December 2012 or at all.[114]It is common ground between the parties that PUK’s trade was its oil extraction activities which is a RFT. The Onshore Oilfields were both working oil fields that were in operation throughout the period from the signing of the BASPA until completion of the POSPA. Irrespective of who actually owned the Field Facilities they continued to operate throughout this period. It follows that, for the period of its ownership of the Disputed Field Facilities, PUK intended to and did use them for the purpose of its RFT. Under the terms of the POSPA, PUK’s ownership could have been up until the backstop date of 31 December 2012. As the BASPA completed on 14 December 2011, PUK’s period of ownership of the Disputed Field Facilities could have been for a over a year.[115]Further, we find that based on the evidence before us and on a balance of probabilities, if the POSPA had not completed, PUK would not have tried to find a new buyer and would have continued to use the Disputed Field Facilities for the purpose of its RFT indefinitely.[116]It follows that even if we accept that PUK’s purpose in purchasing the Disputed Field Facilities was in part for the purpose of selling them on to Premier under the POSPA (which we discuss further in paragraph [‎132] – [‎134] below) its purpose was at a minimum “partly for the purposes of the qualifying activity” for the duration of its ownership and therefore meets the purpose condition of section 11(4).[117]Further as explained by Mr Peacock, the reference to “partly” in section 11(4) is designed to address a situation where plant or machinery is acquired for both business and personal use. The example Mr Peacock put forward was that of a builder who buys a van for business use but also for personal use at the weekends and in the evenings. In such circumstances section 11(4) still allows the capital allowances for the expenditure on the van because it will be used partly for the business. Mr Peacock did not provide the statutory references but assured us that there are mechanics within the CAA 2001 to ensure that capital allowances are not available to the extent that the plant and machinery is used for personal purposes.[118]This is a very different situation to that of the Disputed Field Facilities, which are not capable of use for personal purposes.

On the Provision Of and Ownership

[119]We address together the questions whether the Disputed Expenditure was incurred “on the provision of plant or machinery” and whether PUK “owned” the Disputed Field Facilities as a result of incurring that expenditure, as the parties’ arguments on these issues substantially overlap.[120]HMRC contend that these requirements are not satisfied. In summary, their case is that although PUK acquired the Field Facilities under the BASPA, it did so subject to a pre-existing commitment under the POSPA to transfer the Disputed Field Facilities to Premier. They emphasise that:(i) the onward sale was pre-determined;(ii) Premier assumed the benefits and burdens of the Disputed Field Facilities with effect from 1 January 2011; and(iii) PUK’s interest during the six days between completion of the BASPA and completion of the POSPA was therefore, in practical terms, “hollowed out” by the contractual allocation of obligations and benefits to Premier. On that basis, HMRC submit that PUK neither incurred expenditure on the “provision of” the Disputed Field Facilities nor owned them “in a real and practical sense”, notwithstanding that it held legal title for six days.[121]HMRC submit that section 11(4)(b) requires more than bare legal title. Citing Altrad Services Ltd v HMRC [2024] EWCA Civ 720 (“Altrad”), they argue that “ownership” must be assessed in a “real and practical sense”, and that PUK’s ownership lacked economic substance because the benefits, obligations and risks had already been allocated to Premier with retrospective effect. Accordingly, they say that PUK was not, in any meaningful sense, the “absolute owner”.[122]PUK, by contrast, submits that “provision” in this context is effectively synonymous with “acquisition”, as held by the Court of Appeal in Samarkand Film Partnership No. 3 [2017] STC 926 at [110]. On that footing, the relevant question is whether PUK expended the sums in question to acquire the plant or machinery, not what subsequently happened to it, even if that outcome was pre-ordained. As PUK acquired the Field Facilities (including the Disputed Field Facilities) under the BASPA, it submits that the requirement that the expenditure be “on the provision of” plant or machinery is satisfied.[123]As to ownership, PUK relies on Melluish (Inspector of Taxes) v BMI (No 3) Ltd [1996] AC 454 (“Mellhuish”), where Lord Browne-Wilkinson held at page 476F that, for the purposes of section 44(1) of the Finance Act 1971 which is the predecessor legislation to section 11(4); “property belongs to a person if he is, in law or in equity, the absolute owner of it.”[124]The change in language in CAA 2001 from “belongs to” in the predecessor legislation to “owns” is, as the Explanatory Notes make clear, merely linguistic. PUK therefore submits that legal and equitable ownership is determinative, and that there is no additional requirement that the owner retain the economic benefits of ownership.[125]We prefer PUK’s submissions on both issues. Firstly, as regards “the provision of”, we consider that the expenditure incurred by PUK under the BASPA was expenditure on the acquisition, and therefore the provision of, the Field Facilities including the Disputed Field Facilities. The fact that PUK had already entered into the POSPA, and that the onward transfer to Premier was contemplated or even inevitable, does not alter the character of that expenditure. Section 11(4) is concerned with the transaction under which the expenditure is incurred, not the ultimate destination of the assets.[126]Nor do we consider that the retrospective allocation of benefits and burdens to Premier under the POSPA changes that conclusion. PUK could only undertake and perform its obligations under the POSPA—including the obligation to account for or pass on the benefit of the Disputed Field Facilities from 1 January 2011—because it had first acquired those assets under the BASPA on terms that conferred on it the corresponding rights and obligations from the same date. The POSPA therefore presupposes, rather than negates, the prior provision of the assets to PUK.[127]Secondly, as regards ownership, we find that PUK became the legal and equitable owner of the Disputed Field Facilities on completion of the BASPA. Applying Melluish, that is sufficient to satisfy section 11(4)(b). The statutory test is not displaced or supplemented by a requirement that ownership must also be characterised by the retention of economic risk or reward.[128]We do not read Altrad as supporting a different conclusion on the facts of this case. The reference in that decision to ownership in a “real and practical sense” does not justify disregarding clear legal and equitable ownership established under the relevant transactions. The contractual machinery in the POSPA—including the indemnities—operated on the basis that PUK had acquired, and therefore was capable of transferring, the relevant ownership. It does not demonstrate that such ownership was absent.[129]Accordingly, we conclude that, in consequence of incurring the expenditure under the BASPA, PUK both(i) incurred expenditure on the provision of plant or machinery, and(ii) became the owner, in law and in equity, of the Disputed Field Facilities. Section 11(4) is therefore satisfied in respect of both requirements. Issue 2 – Sections 45F and 45G of the CAA 2001 Section 45F

Issue 2 – Sections 45F and 45G of the CAA 2001

[130]PUK’s position is that if they meet the conditions of section 11(4) then they meet the conditions of section 45F because its trade is a RFT. However HMRC point out that section 11(4) only requires that the Disputed Expenditure is incurred wholly or partly for the purposes of a qualifying activity, whereas section 45F(1)(c) requires that it is incurred for use wholly for the purposes of the RFT.[131]HMRC assert that PUK did not incur the Disputed Expenditure for use whollyfor the purposes of a RFT because they also incurred it for the purpose of selling the Disputed Field Facilities on to Premier under the POSPA.[132]However we do not consider that an intention to sell is a separate use of the Disputed Field Facilities. We do not accept that the fact that the Disputed Field Facilities may be sold on to a third party at some point in the future can affect the purpose for which the Field Facilities will be used while they are owned by PUK, even where PUK has already entered into the POSPA at the time of its acquisition of the Disputed Field Facilities.[133]To find otherwise would result in PUK being denied first year capital allowances on the Disputed Field Facilities simply because it had entered into a conditional agreement to sell them to Premier, even if the POSPA did not subsequently complete or only completed 12 months later, notwithstanding that it always intended to use the Disputed Field Facilities wholly for the purpose of its RFT for the duration of its ownership.[134]HMRC’s interpretation of section 45F is not supported by the wording of the legislation. Further it does not accord with the CAA 2001 as a whole. Section 61(1)(a) provides that a disposal value must be attributed to the Disputed Field Facilities if and when they are in fact disposed of under the POSPA which is the appropriate mechanism for making the necessary capital allowances adjustment where plant or machinery is purchased wholly for use in a RFT and then subsequently sold on, even if the onward sale is pre-determined.

Section 45G

[135]Section 45F is looking forward at the intended use of the plant and machinery. Section 45G is looking back at how the plant and machinery has actually been used in the relevant period. Notwithstanding that the Disputed Expenditure qualifies as first-year qualifying expenditure pursuant to section 45F, if PUK did not in fact use the Disputed Field Facilities in its RFT or it used the Disputed Field Facilities for a purpose other than its RFT at any time in the relevant period, then section 45G treats the expenditure as never having been first-year qualifying expenditure.[136]In this case the relevant period is defined by reference to subsection (2)(b) and is the period beginning with the date on which PUK incurred the Disputed Expenditure and ending the day before it ceased to own the Disputed Field Facilities. The relevant period therefore spans 16 May 2011, when it paid the US$500 million deposit, to 19 December 2011, the day before completion of the POSPA.[137]PUK’s position is that it used the Disputed Field Facilities for its RFT from 14 December 2011 to 19 December 2011, and at no time during the relevant period did PUK use the Disputed Field Facilities for any purpose other than its RFT.[138]HMRC submit that PUK at no time used the Disputed Field Facilities for its RFT because the indemnity clause in the POSPA passed the benefits and obligations in those facilities to Premier for the period of its ownership so that they were used for Premier’s RFT, not PUK’s.[139]HMRC further submits that PUK used the Disputed Field Facilities for the purpose of selling them to Premier under the POSPA.[140]We have found at paragraph [‎63] above that the indemnity clause does not have the effect of backdating the legal or beneficial ownership of the Disputed Field Facilities to 1 January 2011. It follows that PUK is using the Disputed Field Facilities in the relevant period for its own purposes which is that of its RFT. Further PUK does not use the Disputed Field Facilities for sale to Premier until the day after the relevant period has ended and cannot therefore be said to be using the Disputed Field Facilities for the purpose of selling them to Premier within the relevant period.[141]Had the BASPA and POSPA actually completed on the same day or consecutive days, section 45G would have had the effect of denying PUK the first year allowances under section 45F. This is because although it would have still met the conditions of 45F because it still had the purpose of using the Disputed Field Facilities for its RFT for the period of its ownership, its period of ownership would not have been long enough to satisfy the requirement that it actually used the Disputed Field Facilities in the relevant period.[142]However those are not the facts of this appeal. On the facts of this appeal PUK used the Disputed Field Facilities for the purpose of its RFT for six days in the relevant period and at no time in the relevant period did it use the Disputed Field Facilities for a purpose other than its RFT. The conditions of section 45G are not therefore satisfied.

Issue 3 – Section 197 of the CAA 2001

[143]Section 198 allows the seller and purchaser to jointly elect the amount that is to be treated for capital allowances purposes as the part of the sale price that is expenditure incurred by the purchaser on the provision of the plant and machinery. On the facts of this case therefore section 198 allows PUK and Premier to agree how much of the purchase price paid by Premier to PUK under the POSPA is expenditure by Premier on the Disputed Field Facilities and accordingly how much of that sale price PUK must bring into account for capital allowances purposes.[144]Subsection (3) of section 198 sets limits on the amount that the parties are allowed to allocate by the election. Applying those restrictions to the facts of this case, PUK and Premier may not elect that the amount treated as expenditure by Premier on the Disputed Field Facilities under the POSPA exceeds the amount that PUK paid for the Disputed Field Facilities under the BASPA. Nor may it exceed the actual sale price paid by Premier under the POSPA.[145]PUK and Premier made a joint section 198 election to treat the sum of US$2 as incurred by Premier under the POSPA on the purchase of the Disputed Field Facilities. This was a valid Election and within the limits set by subsection (3) of section 198.[146]PUK assert that as a result of the valid Election it was only required to bring a nominal disposal value into account and it retained all available capital allowances in respect of the Disputed Expenditure.[147]Section 198 is however subject to section 197 which is an anti-avoidance provision.[148]HMRC assert that the conditions in section 197 are met on the facts of this case, so that notwithstanding the valid Election, the disposal value that PUK must bring into account is the notional written-down value of the plant or machinery pursuant to subsection (2) of section 197.[149]The notional written down value is defined in subsection (3) of section 197 as follows:
“(3) The notional written-down value is— QE – A where— QE is the taxpayer's expenditure on the plant or machinery that is qualifying expenditure, A is the total of all allowances which could have been made to the taxpayer in respect of that expenditure if— (a) that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure, and (b) all allowances had been made in full.”
QE – A where— (a) that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure, and (b) all allowances had been made in full.”

where—

[150]It follows that if the conditions of section 197 are satisfied and the QE minus the total allowances which could have been made to PUK in respect of that expenditure is more than the amount agreed under the Election, then that notional written down value is the amount that PUK has to bring into account, thereby overriding the lower figure agreed in the Election.[151]However we have already found above that PUK was entitled to 100% first year allowances on the qualifying expenditure which included the Disputed Expenditure. It follows that QE = A so that QE – A is zero. Therefore, even if the conditions of section 197 are satisfied, the notional written down value is less than the agreed disposal value of $2, so section 197 would not override the Election.[152]HMRC accept the above analysis and that, on our findings on sections 45F and 45G, section 197 would have no practical effect even if its conditions are met on the facts of this case. They have however requested that we still go on to make the findings as to whether the conditions of section 197 are met on the facts of this case as this will be of relevance if we are wrong on sections 45F or 45G.[153]The remainder of this decision is therefore only relevant in the event that we are wrong on sections 45F or 45G and PUK is not entitled to 100% first year allowances.[154]The disagreement between the parties on section 197 is whether the conditions in section 197(1)(d) are met. This subsection requires that:
“the disposal event is part of, or occurs as a result of, a scheme or arrangement the main purpose or one of the main purposes of which is the obtaining by the taxpayer of a tax advantage under this Part.”
[155]The conditions to be satisfied in section 197(1)(d) are therefore that there is:(a) a scheme or arrangement;(b) a tax advantage; and(c) a main purpose or one of the main purposes, of obtaining a tax advantage.

Scheme or Arrangement

[156]We were referred to the First-tier Tribunal (“FTT”) decision in Tower One St George’s Wharf v Revenue and Customs Commissioners [2022] SFTD 863 which considered the meaning of “arrangements” in the context of the main purpose rule in the SDLT group relief provisions and held:
“55…For several transactions to be part of the same “arrangements”, it would suffice that, prior to the entry into any of the transactions, each of the participants in each of the transactions has an understanding that the transaction that that participant is about to enter into forms part of a scheme, agreement or understanding, and knows the main purposes thereof. 56. The Tribunal considers that transactions entered into by different parties at different points in time will in practice almost inevitably be part of the same “arrangements” if they are effected pursuant to a single plan formulated before they are effected, and if the parties to each of the transactions are aware of that plan and are acting with the intention of giving effect to it.”
[157]This aspect of the FTT decision was upheld by the Upper Tribunal and was not part of the appeal to the Court of Appeal. It also accords with the decision of Lord Denning in Newton and others v Commissioner of Taxation of the Commonwealth of Australia [1958] A.C. 450 at 465-467 that:
“…the word "arrangement" is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons - a plan arranged between them which may not be enforceable at law. But it must in this section comprehend, not only the initial plan but also all the transactions by which it is carried into effect - all the transactions, that is, which have the effect of avoiding taxation, be they conveyances, transfers or anything else.”
[158]HMRC submit that the POSPA, entered into within the context of the existing BASPA, together with the Election, form the scheme or arrangement.[159]PUK do not accept that the BASPA formed part of a scheme or arrangement because although the POSPA and the Election were dependent on the BASPA completing, the BASPA was negotiated and entered into prior to any negotiations with Premier.[160]We find that on the evidence before us, at the time that the BASPA was entered into the parties anticipated that Premier or one of the other Co-Participants might exercise its pre-emption rights, but they had no understanding or plan that PUK would enter into the POSPA and the Election. There was no plan prior to the BASPA being entered into that the POSPA and the Election would follow. As such we do not accept that the BASPA formed part of a scheme or arrangement.[161]The draft Election was included as a schedule to the POSPA and it was a condition of the POSPA that both parties make the Election. We find therefore that the POSPA and the Election formed part of a single scheme or arrangement.

Tax Advantage

[162]Section 577(4) of CAA 2001 provides:
“For the purposes of this Act a person obtains a tax advantage if he (a) obtains an allowance or greater allowance or (b) avoids a charge or secures the reduction of a charge.”
[163]PUK submit that there is no tax advantage to PUK because it simply utilised a statutory election under section 198 which ensured that it retained the allowances to which it became entitled on incurring the Disputed Expenditure. This, PUK submits, is how section 198 was intended to operate and the only limitations are those set out in subsection (3).[164]HMRC submit that the purpose of a section 198 election is simply to avoid the expense and inconvenience of obtaining a valuation in order to make a fair and reasonable apportionment. It does not, in HMRC’s submission, displace the need to make a realistic assessment of the apportionment. HMRC assert that section 198 does not allow for elections that manipulate the apportionment for capital allowances purposes or to the extent that it does, section 197 overrides that tax advantage.[165]Both parties took us through the history of sections 197 and 198 and the corresponding explanatory notes. We were referred to the Explanatory Notes to the Finance Bill 1997 which introduced the predecessor to sections 197 and 198.[166]With respect to the predecessor to section 198 paragraph 25 of those Explanatory Notes explains:
“Where an interest in land to which a fixture is attached is sold or acquired, the sale price has to be apportioned in accordance with Section 150 to determine the sale price of the fixture. The apportionment is made on a valuation basis which has been criticised as costly and inappropriate where figures have been agreed between the parties. Section 59B removes this burden by allowing the purchaser and vendor jointly to elect to determine the amount apportioned to the fixtures.”
[167]We were also referred to the Government consultation document published on 31 May 2011 entitled “Capital allowances for fixtures” in which the Government acknowledged at 1.13 that section 198:
“ - ….can be used to retain allowances in the hands of the seller, when the asset has been transferred to the purchaser and - the anti-avoidance rule in section 197 CAA 2001 may not always be effective in preventing the acceleration of allowances.”
[168]The consultation explained that:
“..the current provisions allow an election for any value (not exceeding the original cost) and elections for a value as low as £1 are being made. This effectively means that the seller retains the benefit of allowances on any expenditure that has not yet been relieved, even though he no longer retains the asset in his business.”
The consultation proposed legislative changes to prevent this.[169]HMRC published the Summary of Responses to this consultation on 6 December 2011 which stated with respect to the issues it had flagged concerning sections 197 and 198:
“Three-quarters of respondents were not in favour of these other, more general, suggestions for improvements. In particular, they did not want the valuation figure under a section 198/199 CAA election to be subject to any new restriction to the tax written-down value. Commentators expressed the view that the issue of the fixtures’ apportionment should be left as a matter for the parties to agree freely, as part of the overall sale negotiations, and that it would be very difficult, as a matter of practice, to work out the tax written-down value of fixtures in every property. Those who expressed a view on the fixtures anti-avoidance provision (section 197 CAA) were of the view that it functioned adequately.”
[170]Consequently the Government decided that it would not take forward any of the proposed changes to sections 197 and 198 at that time and these provisions have not subsequently been amended to address this issue. We acknowledge HMRC’s submission that the consultation document identified section 198 elections as low as £1 as a concern, so can not be said to be content with such elections. However the fact remains that the Government decided not to make any changes to the legislation to address that concern.[171]Lord Hodge (with whom Lord Briggs, Lord Stephens, Lady Rose and Lady Arden agreed) stated in the Supreme Court decision in R (0) v Secretary of State for the Home Department 2023 [UKSC] 3 at [29]:
“There is an important constitutional reason for having regard primarily to the statutory context as Lord Nicholls explained in Spath Holme, p397, "Citizens, with the assistance of their advisors, are intended to be able to understand parliamentary enactments, so that they can regulate their conduct accordingly. They should be able to rely upon what they read in an Act of Parliament.”
[172]Further at paragraph 30 in relation to external aids to interpretation Lord Hodge states at [30]:
“But none of these external aids displace the meanings conveyed by the words of a statute that, after consideration of that context, are clear and unambiguous and which do not produce absurdity.”
[173]We find that while the purpose of section 198 elections may have been primarily to reduce the burden on parties of obtaining formal valuations and to ensure symmetry in the allocations made by buyers and sellers to plant and machinery, there is nothing in the wording of section 198 that prevents parties from apportioning capital allowances between them for commercial purposes, subject to the limitations set out in subsection (3). There is nothing ambiguous in the wording of section 198 or anything to suggest that using section 198 elections in this way creates an absurdity or is contrary to the CAA 2001. The argument against such a purposive interpretation as sought by HMRC is even greater in the context of the Government having acknowledged in 2011 that section 198 elections could and were being used in this way and deciding not to amend the legislation to prevent this.[174]It follows that section 198 does allow for elections to be made that result in the seller retaining capital allowances on plant and machinery that it has disposed of. This does not mean however that such an election can’t be a ‘tax advantage’ as defined by section 577(4). If a section 198 election could never result in a tax advantage because such a tax advantage is permitted by section 198, then section 197 would never apply to reverse a section 198 election. Given that section 198(5)(b) explicitly makes section 198 subject to section 197, that cannot have been Parliament’s intention.[175]We accept therefore that if the parties make a section 198 election that allows the seller to retain the benefit of capital allowances, on plant and machinery that it no longer owns, the seller may obtain a ‘tax advantage’ as defined by section 577(4) because the seller may obtain an allowance greater than it would have obtained had a section 198 election not been made and a fair and reasonable apportionment of the sale price to the plant and machinery had been made pursuant to section 562 instead.[176]It follows that, if we had found that PUK was not entitled to a 100% first year allowance on the Disputed Expenditure pursuant to sections 45F, it would have obtained a tax advantage by making the Election.

Main purpose or one of the main purposes

[177]Section 197 will only apply if the main purpose or one of the main purposes of the POSPA and the Election was to obtain that tax advantage.[178]PUK referred us to the decisions of the Court of Appeal regarding the “unallowable purpose” rules in section 441 of the Corporation Tax Act 2009 and we agree that this guidance is applicable to the question of what constitutes “a main purpose” in section 197(1)(d). In BlackRock HoldCo 5, LLC v Revenue and Customs Commissioners [2024] 4 All ER 649 at [124] Falk LJ summarised the following principles, which have since been cited in Kwik-Fit Group Ltd v Revenue and Customs Commissioners [2024] STC 897 at [54] and JTI Acquisition Company (2011) Ltd v Revenue and Customs Commissioners [2024] STC 1179 at [27]:
“(a) Save in ‘obvious’ cases, ascertaining the object or purpose of something involves an inquiry into the subjective intentions of the relevant actor. (b) Object or purpose must be distinguished from effect. Effects or consequences, even if inevitable, are not necessarily the same as objects or purposes. (c) Subjective intentions are not limited to conscious motives. (d) Further, motives are not necessarily the same as objects or purposes. (e) ‘Some’ results or consequences are ‘so inevitably and inextricably involved’ in an activity that, unless they are merely incidental they must be a purpose for it. (f) It is for the fact finding tribunal to determine the object or purpose sought to be achieved, and that question is not answered simply by asking the decision maker.”
[179]Also in the case of Travel Document Services and another v HMRC [2018] 3 All ER 60 the Court of Appeal held that:
“A ‘main’ purpose will always be a ‘more than trivial’ one, but the converse is not the case. A purpose can be ‘more than trivial’ without being a ‘main’ purpose. ‘Main’ has a connotation of importance.”
[180]HMRC submit that one of the main purposes of the scheme or arrangement (the POSPA and the Election) was to enable PUK to obtain the tax advantage of retaining the capital allowances on the Disputed Expenditure.[181]PUK submit that the main purpose of the scheme or arrangement was to secure a deal with Premier that would prevent them from derailing the BASPA and that retaining the capital allowances in the Disputed Expenditure was not the or a main purpose.[182]We have already made relevant findings of fact with respect to the POSPA and the Election which form the scheme or arrangement in paragraphs [‎44] to [‎48] above.[183]The Election was a means for Premier to pay part of the pro-rata consideration for the POSPA Interest. There was no evidence to suggest that it was important to PUK that they receive the consideration in this way. Indeed Mr Parr’s evidence, supported by the documentary evidence, is that PUK were initially not happy with the proposal from Premier to pay some of the consideration by way of a section 198 election.[184]In the event, because of the way that the deal was structured it was important that the Election was made, which is why both parties committed to it in the POSPA, but it was an important means of achieving the purpose of the arrangement, it was not itself a purpose of the arrangement. Mr Parr stated in cross examination that the Election was a “key bargaining chip”. However a bargaining chip does not equate to a main purpose.[185]For all the reasons above we find that the tax advantage that PUK obtained by entering into the POSPA and the Election was not its main purpose and section 197 therefore would not apply to replace the Election with the notional written down value.

Conclusion

[186]The conditions in section 11(4) are satisfied in respect of the Disputed Field Facilities.[187]The Disputed Expenditure constituted first-year qualifying expenditure under section 45F, and section 45G does not operate to deny that treatment.[188]Although the POSPA and the Election formed part of a scheme or arrangement which could give rise to a tax advantage, the requirements of section 197 would not be fully met because the obtaining of that tax advantage was not a main purpose of the scheme or arrangement.[189]Given our conclusion in paragraph [‎187] above, the notional written-down value would be nil, so section 197 would have no practical effect even if it were engaged.[190]For all the reasons above we allow the appeal.

Next Steps

[191]The parties are directed to seek to agree the correct foreign exchange basis to be applied to the dollar expenditure in consequence of our decision. In default of agreement, the parties have liberty to apply to the Tribunal for further determination of that issue.

Right to apply for permission to appeal

[192]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 28 July 2026