Upper Tribunal sets aside £57m quay wall capital allowances win for Mersey Docks

The Upper Tribunal (UT) has overturned the First-tier Tribunal’s (FTT) ruling that £57.1m spent on a quay wall at the Port of Liverpool qualified for plant and machinery allowances. The decision does not end the claim as the UT "remit the appeal to the FTT for re-consideration...of those matters where [the UT] have identified errors of law and consequential matters flowing from those errors."

Mersey Docks and Harbour Company Ltd (MDHC) is the harbour authority for the Port of Liverpool, with its activities mainly relating to the loading and unloading container vessels.  Between 2013 and 2017 it developed 'Liverpool2', a deep-water container terminal built on 17 hectares of reclaimed land and designed for ships of up to 380m in length carrying 18,000-20,000 twenty-foot equivalent containers.

The quay wall at the heart of the dispute is a structure of around 830m, built from steel piling on the river and landward sides, tied together and filled with sand beneath a concrete slab.  Concrete coping beams carry the rails for the ship-to-shore (STS) cranes, along with bollards and fenders. The wall also retains the reclaimed land and forms one side of the berthing pocket where two vessels can moor.

MDHC claimed plant and machinery allowances on the £57.135m construction cost. HMRC accepted the treatment of the other Liverpool2 expenditure, including the cranes themselves, but denied relief on the wall.  HMRC argued it was part of the premises and therefore excluded as a dock structure under section 22, List B, Item 5, CAA 2001 - "A dock, harbour, wharf, pier, marina or jetty or any other structure in or at which vessels may be kept, or merchandise or passengers may be shipped or unshipped."

The First-tier Tribunal had concluded that the quay wall was apparatus used in the company’s trade rather than merely the premises from which the trade was conducted.  It relied heavily on the treatment of a dry dock as plant in IRC v Barclay, Curle & Co Ltd.  Although marine infrastructure is generally excluded by List B, the FTT held that the expenditure was saved by Item 1 of section 23, List C (Expenditure unaffected by sections 21 and 22) because it was incurred in installing the ship-to-shore cranes.

The UT identified three material errors of law.

First, the FTT had wrongly analysed the quay wall and cranes as a composite asset when deciding whether the wall was plant, leaning heavily on Barclay Curle, in which the whole dry dock was plant.  The correct exercise required the functions of the quay wall itself to be evaluated in the context of the MDHC's business. The analogy with the dry dock in Barclay Curle was therefore incorrectly applied and the UT cautioned against reasoning by factual analogy rather than from legal principle.

Second, the FTT had not adequately explained why it preferred evidence that the wall’s predominant purposes were mooring vessels and supporting the cranes over evidence emphasising its role in retaining reclaimed land.  This omission was material to the distinction between plant and premises, experts for both parties had disagreed on exactly this point.

Third, when applying Item 1 of List C, the FTT had effectively asked whether constructing the wall was necessary for the cranes to operate, a “necessity” test.  Following the Supreme Court’s April 2026 reasoning in Ørsted West of Duddon Sands (UK) Ltd v HMRC [2026] UKSC 12, necessity is insufficient.  There must be a sufficiently close connection between the expenditure and the provision of the relevant plant or machinery.

Although, the FTT decision found that the expenditure was saved by List C, Item 1, it also included findings for the sake of completeness on wider arguments regarding List C, Items 22 and 24.  In its Respondent’s Notice at appeal with the UT, MDHC challenged these findings.

Given deliberations, the UT did not consider there a good reason to consider the Item 22 point further as it was deemed an academic ground of appeal.

The UT did however uphold the conclusion that the quay wall was not a “jetty or similar structure” within Item 24 of List C.  In both its ordinary language meaning and its statutory context, a jetty connotes a relatively small, narrow structure; the Liverpool2 quay wall was more appropriately characterised as a wharf (statutory context given by the marine infrastructure set out in List B, Item 5).

The practical message is that the MDHC has lost its FTT victory and is a setback for the taxpayer, but not necessarily a final win for HMRC as they have not yet established that the expenditure is non-qualifying. 

The UT acknowledged that specialist foundations supporting plant can, on the right facts, qualify, but it requires a multi-factorial assessment of the structure’s own functions.  The rehearing must undertake a disciplined, evidence-based assessment of the quay wall as the relevant asset, its competing functions and the precise connection between the structural expenditure and the cranes.  No doubt requiring some more detailed analysis of the constituent parts and their relevant costs.

In keeping with the Ørsted case earlier in the year, large infrastructure operators with similar claims should expect scrutiny of how close the connection is between the relevant expenditure and the plant in question.

There are still 'legs' in this case, and it will be interesting to see how a reconstituted FTT panel will apply, or challenge, the UT findings.  Given the sums involved, and the fundamental capital allowances law in question, it is likely that whomever takes the spoils of a remade FTT decision, the opposing party will undoubtedly contemplate a further challenge of the decision through to the Court of Appeal.  This may rumble on for somewhile yet!

This case, as with other recent capital allowances decisions and challenges - highlights the importance of fully understanding the legislation and case law, as well as providing a detailed analysis of the project expenditures - under appropriate heads of claim.

If you would like to discuss any property tax matters or specific queries relating to the above information, then please do contact the team on 0345 230 6450 or [email protected].  We look forward to speaking with you soon.