Mersey Docks £57.1m Quay Wall Capital Allowances Claim: Upper Tribunal Sets Aside FTT Ruling and Remits Case
Case: The Commissioners for His Majesty's Revenue and Customs v The Mersey Docks and Harbour Company Limited
Reference: [2026] UKUT 00417 (TCC)
Subject: HMRC appeal against First-tier Tribunal (FTT) decision allowing £57.1m plant and machinery capital allowances claim for expenditure on a new Quay Wall at the Port of Liverpool
Decision: Appeal allowed; FTT decision set aside and case remitted to a newly constituted FTT panel
Case Summary
The tax treatment of major maritime infrastructure has now taken another turn following a decision by Upper Tribunal (Tax and Chancery Chamber) to allow an appeal by HM Revenue and Customs (HMRC) against a previous FTT ruling which accepted a claim by The Mersey Docks and Harbour Company Limited (MDHC) for £57,134,538 in plant and machinery allowances for constructing a massive Quay Wall at the Port of Liverpool.
The Upper Tribunal identified three material errors of law in the FTT judgment:
Improperly analysing the Quay Wall and heavy ship-to-shore cranes as a "composite asset",
failing to provide adequate reasons for preferring MDHC's expert evidence over HMRC's, and
applying an erroneous "test of necessity" under List C, Item 1 of the Capital Allowances Act 2001 (CAA 2001) in light of recent Supreme Court guidance.
Consequently, the Upper Tribunal set aside the FTT decision and remitted the proceedings to a newly constituted FTT panel for re-evaluation.
The Liverpool2 Quay Wall Project
Between 2013 and 2017, MDHC developed a deep-water container terminal at the Port of Liverpool known as "Liverpool2". Designed to accommodate "Post-Panamax" container ships measuring up to 380 metres in length and carrying up to 20,000 twenty-foot equivalent units (TEU), the project required extensive river dredging, 17 hectares of land reclamation, and heavy-duty structural engineering works.
Central to Liverpool2 is an 830-metre main Quay Wall abutting the River Mersey. The structure features outer piling on the river side, inner piling landward, sand infill, tie-backs, concrete coping beams, bollards, and fenders. Crucially, the coping beams house embedded steel rails engineered to support heavy Ship-to-Shore (STS) cranes. Each STS crane weighs thousands of tonnes, operates on 16 wheels, extends up to 65 metres over berthed vessels, and transfers containers directly between ships and quay transport.
MDHC claimed plant and machinery capital allowances on the £57,134,538 spent constructing the Quay Wall, contending that its design and structural capacity were driven by the need to support and operate the STS cranes. HMRC issued a closure notice denying the claim, maintaining that the Quay Wall was not "plant" but rather part of the "premises" or site upon which MDHC conducted its cargo-handling trade. Furthermore, HMRC argued that even if plant-like characteristics existed, the Quay Wall constituted a "dock, harbour, wharf, pier, marina or jetty" excluded from allowances under Section 22, List B, Item 5 of CAA 2001.
The First-Tier Tribunal Ruling (2024)
In its decision released on 23 December 2024, the FTT allowed MDHC's appeal in full based on three primary findings:
Distinct Asset Identification: The FTT determined that the Quay Wall was a distinct functioning asset separate from the adjacent Container Transition Area (CTA) where containers are stored and sorted using Cantilever Rail Mounted Gantry (CRMG) cranes.
Application of the Barclay Curle Analogy: The FTT held that the Quay Wall qualified as plant under Section 11(4)(a) CAA 2001. Relying heavily on the landmark House of Lords dry dock precedent, IRC v Barclay, Curle & Co Ltd [1969] 1 WLR 675, the FTT concluded that the Quay Wall acted as an integral tool with which MDHC carried on its trade, rather than a mere setting or premises.
List C, Item 1 Exception: Acknowledging that the Quay Wall was prima facie excluded under Section 22, List B as a wharf or dock structure, the FTT held that the expenditure was "saved" by Section 23, List C, Item 1 ("Machinery not within any other item"). The FTT reasoned that because constructing the Quay Wall was a necessary precursor without which the STS cranes (accepted by HMRC as machinery) could not be installed or operated, the Quay Wall expenditure was incurred "on the provision of" machinery.
The Upper Tribunal Decision (2026): Three Material Errors of Law
Following oral hearings in July 2026, the Upper Tribunal released its judgment on 28 October 2026, setting aside the FTT ruling due to three fundamental legal flaws.
Flawed Asset Analysis and Misapplied Barclay Curle Analogy
The Upper Tribunal held that the FTT erred by evaluating the Quay Wall and the STS cranes together as a single "composite asset" rather than assessing the Quay Wall on its own merits.
In Barclay Curle, the House of Lords treated the entire dry dock—including excavation, concreting, valves, and pumps—as a single integrated item of plant. The FTT attempted to transpose Barclay Curle by treating the Quay Wall as analogous to the excavation and concreting, and the STS cranes as analogous to the valves and pumps.
The Upper Tribunal ruled that this analogy was legally defective. The STS cranes were independent, mobile items of machinery whose tax treatment was conceded by HMRC. In determining whether the Quay Wall qualified as plant, the FTT was required to evaluate the functions of the Quay Wall itself within MDHC's trade, rather than evaluating the combined functionality of the Quay Wall and cranes acting as a composite operational unit.
Inadequate Reasons for Preferring Expert Evidence
During the FTT hearing, expert civil engineering evidence was presented regarding the primary operational functions of the Quay Wall:
HMRC's Expert (Mr. Corrigan) testified that the primary structural function of the Quay Wall was retaining over 30 metres of reclaimed soil and land against immense lateral hydrodynamic and earth pressures. He demonstrated that vertical loads from the STS cranes accounted for a minor fraction of the structural size and cost of the wall, and that outer coping beams were dimensioned primarily to withstand vessel berthing and fender impact forces.
MDHC's Expert (Mr. Neal) maintained that the Quay Wall's primary purpose was providing a stable operational platform enabling the STS cranes to operate immediately adjacent to Post-Panamax vessels.
The FTT concluded that the primary purposes of the Quay Wall were crane support and vessel mooring, treating both functions as equally vital. However, the FTT dismissed Mr. Corrigan's structural calculations as "neither clear nor conclusive" without providing any analytical explanation or raising questions during the hearing. The Upper Tribunal ruled that the FTT failed in its duty to give adequate reasons for preferring Mr. Neal's opinion over Mr. Corrigan's on a central factual dispute, rendering its evaluative finding legally unsafe.
Incorrect Legal Test for List C, Item 1 Expenditure
The FTT held that Quay Wall expenditure qualified under List C, Item 1 because constructing the wall was a "necessary precursor" to installing the STS cranes.
The Upper Tribunal held that the FTT applied an incorrect legal standard by adopting a broad "test of necessity." The FTT did not have the benefit of the Supreme Court's landmark judgment in Orsted West of Duddon Sands (UK) Ltd v HMRC [2026] UKSC 12 (handed down in April 2026).
In Orsted, Lady Rose clarified that expenditure "on the provision of" plant or machinery requires a narrow test establishing a close connection between the expenditure and the plant itself. The Supreme Court explicitly rejected the proposition that any expenditure necessarily incurred prior to providing plant qualifies for allowances.
Applying Orsted, the Upper Tribunal held that the FTT erred by assuming that necessary precursor infrastructure automatically qualifies under List C, Item 1 without testing for the requisite close legal and physical connection.
First-Tier Tribunal vs. Upper Tribunal Comparison Matrix
The following analytical matrix synthesizes how the First-tier Tribunal and the Upper Tribunal evaluated each core legal issue, factual dispute, and statutory exception in the litigation.
Issue / Statutory Test | First-tier Tribunal (FTT) Ruling [2024] | Upper Tribunal (UT) Decision [2026] | Legal & Practical Outcome |
Asset Identification | Held that the Quay Wall is a distinct asset separate from the Container Transition Area (CTA). | Upheld FTT asset identification. No challenge by HMRC on appeal. | Quay Wall remains treated as a separate standalone asset from storage/sorting areas. |
Plant vs. Premises (Barclay Curle Analogy) | Held the Quay Wall is plant, drawing a direct analogy to the dry dock in Barclay Curle. | Overturned. Held FTT erred by treating Quay Wall and STS cranes as a single "composite asset." | FTT must re-evaluate whether the Quay Wall itself acts as plant or premises. |
Evaluation of Expert Evidence | Found primary purposes were crane support and mooring; dismissed HMRC expert calculations. | Overturned. Held FTT failed to provide adequate reasons for rejecting HMRC expert evidence on land retention. | Fact-finding on Quay Wall's predominant structural function must be re-examined. |
List C, Item 1 (Machinery Provision) | Held expenditure was "saved" as cost of installing cranes under a broad "necessity" test. | Overturned. Applied Supreme Court Orsted precedent requiring a narrow test of "close connection." | Broad necessity test rejected; narrow connection test mandated for installation costs. |
List C, Item 22 (Land Alteration) | Rejected. Held land was not altered for the purpose only of installing plant. | Upheld FTT outcome. MDHC conceded it was bound by Urenco precedent regarding standalone structures. | Land alteration exception remains unavailable for major structural quay wall works. |
List C, Item 24 (Jetty Exception) | Rejected. Held Quay Wall is not a "jetty or similar structure" within List C, Item 24. | Upheld FTT. Ruled "jetty" connotes a small, narrow structure; Quay Wall is legally a "wharf." | Major quay walls cannot rely on the List C Item 24 jetty exception to bypass List B exclusions. |
Procedural Impact of 11-Month FTT Delay | Hearing concluded Feb 2024; decision released Dec 2024 (11 months). | Declared 11-month delay "unacceptable," but ruled it did not independently invalidate factual findings. | FTT delay criticized but held insufficient on its own to overturn the judgment. |
Final Case Disposition | Appeal allowed; MDHC granted £57.1m capital allowances. | Decision set aside. Case remitted back to a newly constituted FTT panel for re-hearing. | Tax liability unresolved; case remitted for re-evaluation under correct legal tests. |
Statutory Exceptions and Procedural Findings
In addition to the core errors of law, the Upper Tribunal addressed secondary statutory exceptions and procedural arguments raised by the parties.
The "Jetty or Similar Structure" Exception
MDHC submitted in a Respondent's Notice that even if List C, Item 1 failed, the Quay Wall should be saved under List C, Item 24 as a "jetty or similar structure provided mainly to carry plant or machinery." MDHC argued that the word "any" and the phrase "similar structure" warranted an expansive reading.
The Upper Tribunal rejected MDHC's argument, affirming the FTT. Interpreting Section 22 (List B, Item 5) and Section 23 (List C, Item 24) in context, the tribunal noted that List B explicitly differentiates between docks, harbours, wharves, piers, marinas, and jetties. In ordinary language and statutory drafting, a "jetty" connotes a relatively small, narrow structure projecting into water. Extending Item 24 to cover a massive 830-metre heavy quay wall would effectively swallow the primary List B exclusion for wharves and docks. The Quay Wall is properly characterised as a wharf, placing it outside Item 24.
Judicial Delay Assessment
HMRC argued that the 11-month delay between the FTT hearing in February 2024 and the decision release in December 2024 undermined the cogency of the FTT's findings. While the Upper Tribunal agreed that an 11-month delay without justification was "unacceptable" against standard judicial benchmarks, it held that delay alone did not render the decision unsafe given that full hearing transcripts were preserved.
Strategic Implications and Remittal Guidelines
The Upper Tribunal's decision establishes key principles for corporate infrastructure tax planning:
Rejection of Composite Asset Aggregation: Taxpayers cannot bundle non-qualifying civil structures with qualifying mobile machinery to claim that the entire composite system functions as plant. Each discrete asset must be tested independently.
Strict Enforcement of the Supreme Court Orsted Narrow Test: Civil engineering works and foundations will not qualify for capital allowances merely because they are "necessary precursors" to installing machinery. Taxpayers must establish a direct, close physical and functional connection under List C, Item 1.
Strict Construction of Marine Infrastructure Exceptions: Marine structures such as quay walls and wharves remain strictly excluded under List B, Item 5 unless they meet narrowly defined List C criteria without straining statutory language.
Remittal Mandate
The Upper Tribunal remitted the appeal to a newly constituted FTT panel. The new panel will not re-hear live witness evidence; existing factual findings and hearing transcripts stand. However, the new panel must conduct a fresh evaluative assessment to determine:
Whether the Quay Wall, viewed strictly as a standalone asset, functions as plant or premises in MDHC's trade, taking full account of all its structural functions (including land retention and vessel berthing).
Whether any specific portion of the Quay Wall expenditure satisfies the narrow Orsted close-connection test under List C, Item 1 for installing the STS cranes.