Altrad Services Limited & Anor. v The Commissioners for HMRC

The Capital Allowances Act 2001 must be construed purposively, using ordinary principles of statutory interpretation and a realistic evaluation of the facts. That approach does not permit a court to disregard an effective transfer merely because it forms part of tax-motivated arrangements.

For section 61(1)(a), plant and machinery ceases to be owned when the taxpayer loses legal and beneficial ownership. The provision operates at a point in time. It does not require inquiry into the taxpayer’s purpose or a planned future reacquisition.

Under the long funding finance lease rules, a payment made by the lessee under an assurance of a residual amount can be part of QA. A hire-purchase contract under section 67 must confer on the user a right or option to acquire ownership; practical certainty that another party will exercise a put option is insufficient.

The appellants sold trading plant and machinery to a leasing company, leased it back for three or four weeks, and granted put options requiring them to repurchase the assets if exercised. They claimed that the arrangements increased their qualifying expenditure for capital allowances.

The First-tier Tribunal dismissed their appeals against HMRC closure notices. It held that, applying the Ramsay line of authority, the appellants had not ceased to own the assets for section 61(1)(a) of the Capital Allowances Act 2001. It rejected HMRC’s hire-purchase argument but accepted the appellants’ construction of QA under the long funding lease rules.

The Upper Tribunal considered whether the sale engaged section 61(1)(a), whether the lease and put option fell within section 67, and whether the option price was included in QA.

1. Appeals allowed. The First-tier Tribunal’s decision was set aside and remade. The appellants’ appeals against the closure notices were allowed.

2. The Ramsay approach is not a special anti-avoidance doctrine. It requires purposive construction of the relevant provision and a realistic evaluation of the transaction. A transaction lacking commercial purpose is disregarded only where that follows from the statute so construed.

3. Section 61(1)(a) of the Capital Allowances Act 2001 is concerned with a snapshot event. A person ceases to own plant and machinery when that person loses legal and beneficial ownership. The text neither requires an inquiry into the reason for the loss nor asks whether reacquisition is likely or pre-ordained. The FTT’s findings that the arrangements lacked commercial purpose, were short-lived and involved a pre-ordained put option therefore did not answer the statutory question. On its unchallenged finding that legal and beneficial ownership passed to SGLJ, it should have held that section 61(1)(a) was satisfied.

4. For section 70E(2C)(b), a payment by the lessee under a guarantee of a residual amount is not confined to payment under an accessory, tripartite guarantee. In this context, “guarantee” means an assurance. The option price was properly included in QA. The statutory formula performs a truing-up function between anticipated qualifying expenditure and payments actually made. Before the amendments in the Finance Act 2011, the legislation contained no exclusion merely because the same payment was also qualifying expenditure under section 11.

5. Section 67 concerns rights conferred on the user under the relevant contract. The notional contract formed by the lease and put option did not provide that the appellants shall become owners: SGLJ alone could exercise the put option. Nor did it provide that they may become owners in the statutory sense, which addresses a user’s right or option to acquire ownership. The practical likelihood that SGLJ would exercise its option was insufficient. The lease was therefore not excluded from the long funding lease regime by section 70J(3).

• Upper Tribunal (Tax and Chancery Chamber): Allowed the appeals, set aside the FTT decision, and remade the decision to allow the taxpayers’ appeals against the closure notices: [2022] UKUT 185 (TCC).
• First-tier Tribunal (Tax Chamber): Released its decision on 23 March 2020 and dismissed the taxpayers’ appeals against HMRC’s closure notices.