HMRC successfully appealed against an earlier tribunal decision that obtaining capital allowances was not a main object of incurring expenditure on the taxpayer company’s purchase of two vessels.
The respondent company (LEL) claimed capital allowances at 25% in respect of expenditure incurred on the purchase of two merchant vessels designed and built to ship liquefied natural gas from Norway to Spain and the USA, where LEL became a lessor of those vessels. HM Revenue & Customs (HMRC) subsequently denied LEL’s capital allowances claim. LEL’s appeal was allowed by the First-tier Tribunal (FTT), and the FTT’s decision was upheld by the Upper Tribunal (UT). HMRC appealed.
There was no dispute that in principle LEL was entitled to the 25% writing down allowances it claimed in respect of the vessels, unless an anti-avoidance provision in CAA 2001, s 123(4) (‘Ships and aircraft’) applied (in
