CA20060 - Plant and Machinery Allowances (PMA): introduction: restricted meaning of 'on' and ‘on the provision of’
CAA01/S11(4)(a)
The condition that the qualifying expenditure must be incurred ‘on the provision of plant or machinery’ should be interpreted narrowly. The case of Ben-Odeco Ltd. v Powlson, 52TC459, showed that remote or indirect expenditure does not satisfy this condition, and therefore does not qualify for plant and machinery allowances (PMA).
Ben-Odeco Ltd borrowed a large amount of money to finance the construction of an oil-drilling rig and charged the commitment fees and the interest to capital. It claimed capital allowances on the commitment fees and interest on the loan as part of the cost of the rig. The House of Lords refused the capital allowance claim because the commitment fees and interest were not expenditure on the provision of the rig. They were expenditure on obtaining funds with which to acquire the rig.
Lord Russell, at page 1106, framed the question as follows:
In my view the question to be asked is, what is the effect of particular capital expenditure? Is it the provision of finance to the taxpayer, or is it the provision of plant to the taxpayer?
The Supreme Court quoted this paragraph, and confirmed this is the correct approach, in the case of Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2026] UKSC 12 (see CA95010), at paragraph 48. In particular, the Supreme Court said, at paragraph 74, that determining whether expenditure is “on the provision of plant or machinery” is a:
...narrow test, requiring a close connection between the expenditure and the plant provided.
'On' what has expenditure been incurred?
In avoidance cases such as Tower MCashback LLP 1 v HMRC, [2011] 2 AC 457, The Vaccine Research Limited Partnership v HMRC, [2014] UKUT 0389 (TCC), and Marathon Oil U.K., LLC v HMRC, TC06217, courts and tribunals have considered it necessary to determine the ‘purpose and object’ of expenditure in order to establish what that expenditure had been incurred ‘on’.
In the first two cases the taxpayers sought to inflate allowance entitlement, so as to get more than would otherwise be available, by entering into circular finance schemes. It was found that the part of the expenditure that produced no economic activity but rather went into a loop as part of a tax avoidance scheme was not expenditure ‘on’ the relevant thing (information and communications technology in one case, research and development in the other), therefore that part of the expenditure did not qualify for allowances.
In the latter case the taxpayer sought to accelerate allowance entitlement, so as to get allowances sooner than would otherwise be available, by making a pre-payment to a subsidiary company for decommissioning of plant and machinery several years before any actual decommissioning was carried out. The First Tier Tribunal found that the only reason for incurring the expenditure at the relevant time was to accelerate allowances, therefore the expenditure was not ‘on’ decommissioning and did not qualify for allowances.
Transport and installation
Transport and installation costs of plant or machinery satisfy this condition however and can therefore qualify for PMAs. In Orsted, the Supreme Court clarified, at paragraph 85, that these costs qualify because they are:
...inherent in the concept of the plant being “provided”.
Professional fees and preliminaries
There is further guidance on the treatment of these fees at CA20070.