Inmarsat Global Ltd v Revenue and Customs Commissioners (UT and CA references)

The Court of Appeal dismissed Inmarsat's appeal against HMRC. The core legal question was whether Inmarsat (as successor to IMSO) could claim writing-down allowances in respect of launch costs paid by IMSO in relation to satellites. The court held that section 78 of the Capital Allowances Act 1990 (CAA 1990) performs a valuation function on succession and does not, by itself, deem ownership of assets to have passed to a successor; consequently Inmarsat was not treated as the owner and could not satisfy the "belonging" requirement in section 24. The court therefore ruled that section 78 could not entitle Inmarsat to capital allowances. The judgment also analyses the meaning and operation of section 61(4) CAA 1990 (machinery and plant on lease) — including whether launch costs are "expenditure on the provision of" plant and whether a lessee is "required to provide under the terms of the lease" and the temporal aspects of s61(4) — but concluded that resolution of those points was unnecessary once section 78 was held inapplicable. The court gave reasons for preferring the Upper Tribunal's construction of s78 and explained the statutory and policy background to both s78 and s61(4).

This appeal concerned whether the claimant, Inmarsat Global Limited, which succeeded to the trade of the International Maritime Satellite Organisation (IMSO), could claim capital allowances (writing-down allowances) for launch costs that IMSO had incurred in relation to certain satellites. Inmarsat sought to rely on sections 61(4) and 78 of the Capital Allowances Act 1990.

Background and procedural history

• The factual matrix involved six satellites (three I-2 and three I-3), construction contracts novated to financial lessors, leases of the satellites, and launch contracts the costs of which were paid by IMSO. In 1999 Inmarsat acquired IMSO's trade and succeeded to the leases by novation.
• IMSO (and later lessors) had not claimed allowances for the launch costs; Inmarsat sought writing-down allowances after succession. The dispute was heard by the First-tier Tribunal (FTT), which decided for HMRC. The Upper Tribunal (UT) dismissed Inmarsat's appeal ([2021] UKUT 59 (TCC)). Inmarsat appealed to the Court of Appeal.

Nature of the claim

Inmarsat claimed writing-down allowances under the capital allowances code in respect of launch costs incurred by IMSO, arguing that (i) s61(4) should treat the satellites as belonging to IMSO because IMSO had incurred capital expenditure on their provision as a lessee required to provide them under the leases, and (ii) on succession s78 would treat the property as sold to the successor at open market value so that Inmarsat (as successor) could be treated as having incurred qualifying expenditure for the purpose of claiming allowances.

Issues framed by the court

1. Whether s78 CAA 1990 applied to deem IMSO to have sold the satellites to Inmarsat and, if so, with what effect.
2. Whether IMSO incurred the launch costs "on the provision of … plant" for the purposes of s61(4).
3. Whether the other requirements of s61(4) were satisfied, subdivided into (a) whether there was a "requirement" under the lease for IMSO to provide the satellites, (b) whether the timing of expenditure before lease commencement defeated s61(4)'s operation, and (c) the effect of the tailpiece to s61(4) on determination of the leases.

Court's reasoning and conclusions

• On issue 1 the Court of Appeal (Newey LJ, with which Whipple LJ and Underhill LJ agreed) concluded that s78 has a valuation role: it tells how to treat property for valuation on succession (treat as if sold at open market value) but does not itself deem ownership to have passed to the successor. The court emphasised the interpretative guidance in Fowler v R&C Comrs and rejected the submission that the statutory fiction of a sale implies a deemed transfer of title to the successor. The court observed that s78 says nothing about when any deemed belonging would end and contrasted s78 with other provisions (for example s61(4) tailpiece and sections 154–155) that expressly address deemed belonging or the effect on future allowances.
• Because Inmarsat never became actual owner of the satellites (nor was ownership deemed by some other provision), s78 could not make Inmarsat the owner for the purposes of section 24(1)(b). That determination was dispositive: Inmarsat could not satisfy the belonging condition in s24 and so could not claim writing-down allowances. The appeal was therefore dismissed.
• The court nevertheless analysed s61(4). It explained the statutory origins and scope of s61(4), considered whether launch costs could be "expenditure on the provision of" plant, and examined the meaning of being "required to provide under the terms of the lease" and the temporal "chronological flow" argument. The court accepted that such launch costs would amount to expenditure on the provision of plant if incurred by an owner (and, subject to satisfying the belonging condition, could do so when incurred by a lessee under s61(4)). It rejected the contention that "provision" requires the expenditure to be directed to acquiring ownership. On timing, the court concluded that s61(4) requires the lease term to have begun (so that a lessee exists) but does not preclude reliance on expenditure incurred before the lease term for allowances; the statutory machinery for dating expenditure may bring such pre-term obligations within scope. On whether IMSO was contractually "required" to procure launches for the I-3 satellites, the court concluded that the contractual and Convention obligations did not demonstrate a clear specific obligation to launch and disagreed with the UT on that subsidiary point. Ultimately these s61(4) points were unnecessary to decide the appeal.

Subsidiary observations

The court discussed legislative history and potential anomalies if s78 were read to create deemed ownership, and noted that s61(4) is intended to apply in "rare circumstances" where a lessee must provide plant which it does not own. The panel gave concurrent and, in parts, differing views on the subsidiary s61(4) issues but agreed on the dispositive point that s78 did not assist Inmarsat.

The appeal is dismissed. The Court of Appeal held that section 78 of the Capital Allowances Act 1990 performs a valuation function on succession and does not itself deem ownership of assets to have passed to the successor; because Inmarsat never acquired ownership of the satellites, it could not satisfy the "belonging" requirement in section 24 and therefore could not claim writing-down allowances. The court analysed section 61(4) but found it unnecessary to decide the appeal on that basis.

FTT (Judge Kevin Poole) decided in favour of HMRC; Upper Tribunal (Adam Johnson J and UT Judge Jonathan Richards) dismissed Inmarsat's appeal ([2021] UKUT 59 (TCC)); Court of Appeal dismissed Inmarsat's appeal ([2022] EWCA Civ 1076).