In Orsted West of Duddon Sands (UK) Limited & Ors v HMRC [2025] EWCA Civ 279, the Court of Appeal (CoA) applied a wider interpretation to the term ‘on the provision of plant', than previous tribunals. This meant that the cost of preliminary studies relating to offshore wind farms qualified for capital allowances.
- Gunfleet Sands Limited, Gunfleet Sands II Limited, Walney (UK) Offshore Windfarms Limited and Orsted West of Duddon Sands (UK) Limited (the companies) incurred expenditure of approximately £48m in relation to the construction of offshore wind farms.
- HMRC accepted that Plant and machinery capital allowances were available for the fabrication and installation of the wind turbines and the electrical array cables that connected them.
- These were known collectively as the 'generation assets'.
- Capital allowances were denied by HMRC on the cost of various studies, on the basis that the expenditure was too remote from, and was not on the provision of, the generation assets (which represented plant).
- The studies included: environmental impact studies and assessments; metocean studies, including studies on water levels, wave regimes, currents and wind conditions, geophysical and geotechnical studies.
- HMRC’s position was that the expenditure on studies put the companies in the position to incur expenditure on the provision of plant but the expenditure was not itself on the provision of plant.
The companies Appealed to the First Tier Tribunal (FTT) which found that:
- The generation assets formed a single item of plant.
- Some of the expenditure on studies qualified for capital allowances.
- Under IRC v Barclay Curle Co Ltd [1969] 1 WLR 675 a ‘necessary test’ applied.
- Applying this test, many (but not all) of the studies qualified for capital allowances as they were necessary for the design/installation of the wind turbines or the design/construction of the wind farm.
- None of the costs of the studies were deductible as revenue expenditure.
Both sides appealed to the Upper Tribunal (UT) which found that:
- The FTT had not erred in law in deciding whether the generation assets had a single operational function. It was an issue of fact and degree.
- The expenditure on studies was not on the provision of plant and did not qualify for capital allowances.
- The key principle was that expenditure on the construction, transport and installation of plant could be qualifying, provided that its effect was the provision of plant.
- The FTT’s test of necessity did not comply with that principle: expenditure could be necessary but still not have the effect of providing plant. The test which should have been applied was strict and narrow in interpretation.
- The FTT had been right to deny a revenue deduction for the expenditure.
The companies appealed to the Court of Appeal (CoA) which applied a much wider interpretation to the phrase ‘on the provision of plant’ than was applied by both the FTT and UT.
The CoA found that:
- Expenditure ‘On the provision of plant or machinery’ (s.11 CAA 2001), encompasses the costs of design as well as installation. This extends to costs of studies which inform such installation or design, provided that:
- The plant or machinery to which the expenditure relates was actually acquired or constructed.
- The expenditure did not arise from characteristics or circumstances particular to the specific taxpayer.
- It was unclear whether the costs incurred on scoping documents were incurred ‘on the provision of’ the generation assets. Further submissions from the parties were invited on this point.
- By applying the wider definition of 'on the provision' above, the expenditure on all of the other studies was incurred 'on the provision of’ the generation assets, meaning capital allowances were available.
- This included all the studies on which the FTT gave allowances, as well as those where the FTT had denied allowances (relating to landscape, seascape and visual assessment; ornithology and collision risk; noise; and telecoms and radar interference studies).
The appeal was allowed.
Useful guides on this topic
What expenditure qualifies for plant & machinery allowances?
What is plant and machinery? What expenditure qualifies as plant and machinery? What is treated as part of a building?
Plant & machinery: Allowances
What capital allowances are available on plant and machinery? How do you calculate them? What are qualifying activities?
Annual Investment Allowance (AIA)
What is the Annual Investment Allowance? What are the limits? What expenditure qualifies?
Long-life assets
What is a long-life asset for capital allowances? What allowances can be claimed on long-life assets?
Structures & Buildings Allowance (SBA)
Who can claim the Structures and Buildings Allowance? What expenditure is eligible? How to make a claim?
Full expensing & First Year Allowances
What is full expensing? When does it apply and what is the rate of allowance? How are disposals of full expensing assets dealt with? What assets qualify for the 50% First Year Allowance (FYA)? How do I deal with disposals of 50% FYA assets? How do I make a claim?
External links
Orsted West of Duddon Sands (UK) Limited & Ors v HMRC [2025] EWCA Civ 279
