The Commissioners For HMRC v Altrad Services Limited & Anor

A purposive construction of tax legislation requires a realistic appraisal of a planned composite arrangement. A temporary transfer of legal and beneficial title will not necessarily constitute a statutory cessation of ownership where it is an entirely tax-driven step in a pre-ordained circular scheme, has no commercial purpose, restores the taxpayer’s full ownership within weeks, and leaves its practical use of the assets uninterrupted.

In that setting, the intermediate steps may be disregarded. The taxpayer has not ceased to own the assets for section 61(1)(a) of the Capital Allowances Act 2001, so no disposal event arises on which a purported fresh claim for capital allowances can operate.

The respondent companies implemented substantially identical marketed arrangements involving plant and machinery already used in their trades. Each sold assets to a bank, leased them back for a few weeks, and reacquired them under a put-option mechanism. The arrangements were designed to generate additional capital allowances without the economic cost normally associated with new qualifying expenditure.

The First-tier Tribunal dismissed the taxpayers’ appeals against HMRC closure notices. It held that, on a Ramsay analysis, the taxpayers had not ceased to own the assets for section 61(1)(a) of the Capital Allowances Act 2001. The Upper Tribunal allowed the taxpayers’ appeals in [2022] UKUT 00185 (TCC), holding that legal and beneficial ownership had ceased at the initial sale.

HMRC appealed. The central issue was whether the initial sale, viewed as part of the composite scheme, was a disposal event because the taxpayers had ceased to own the assets.

1. Appeal allowed unanimously on ground 1. Sir Launcelot Henderson, with whom Whipple LJ and Nugee LJ agreed, held that the First-tier Tribunal had correctly concluded that the taxpayers did not cease to own the assets within section 61(1)(a) of the Capital Allowances Act 2001.

2. The Ramsay principle is an application of purposive statutory construction. The court must identify the transaction to which the provision was intended to apply and decide whether the actual facts, viewed realistically, satisfy that description. Where a scheme comprises steps intended to operate together, it is necessary to consider the whole arrangement, rather than isolate a single step: W T Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300; Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16.

3. Sections 11 and 61 are complementary elements of the capital-allowances code. They concern ownership and expenditure in the real world of commerce. Section 61 is concerned with events having enduring practical consequences for the taxpayer’s use of assets and its entitlement to allowances.

4. On the unchallenged findings, the transactions were wholly tax-motivated, commercially purposeless and pre-arranged. The taxpayers were certain, save for wholly unforeseen events, to regain full ownership after three weeks. They retained uninterrupted use of the assets in their trades, and the sale proceeds funded the option price. In those circumstances, the brief interruption in legal ownership did not amount, in a real and practical sense, to ceasing to own the assets. The intermediate steps could be disregarded, leaving no disposal event and no basis on which the intended allowance step-up could operate.

5. The Upper Tribunal erred by treating section 61(1)(a) as requiring a snapshot assessment of legal and beneficial ownership. Melluish v BMI (No 3) Ltd [1996] AC 454 did not decide the meaning of “ceases to own” in a Ramsay context. The validity of the individual legal steps did not prevent a purposive, composite analysis.

6. Ground 2, concerning whether the later reacquisition expenditure was qualifying expenditure under section 11(4)(a), did not arise and the court expressed no view on it.

• Court of Appeal (Civil Division) — Allowed HMRC’s appeal on ground 1. The First-tier Tribunal’s conclusion on the Ramsay issue was correct. The court did not determine ground 2: [2024] EWCA Civ 720.
• Upper Tribunal (Tax and Chancery Chamber) — Allowed the taxpayers’ appeals, set aside the First-tier Tribunal’s decision, and remade the decision to allow the appeals against HMRC’s closure notices: [2022] UKUT 00185 (TCC).
• First-tier Tribunal (Tax Chamber) — Dismissed the taxpayers’ appeals against the closure notices on 23 March 2020, accepting HMRC’s primary Ramsay argument.