In Orsted West of Duddon Sands (UK) Limited & Ors v HMRC [2026] UKSC 12, the Supreme Court (SC) applied a narrower interpretation to the term ‘on the provision of plant' than was applied by the Court of Appeal (CoA). As such, the cost of preliminary studies and surveys relating to offshore wind farms did not qualify for capital allowances, as there was not a close enough connection between the expenditure and the plant provided.
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 surveys and 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 surveys and studies included environmental impact studies and assessments, metocean studies, including studies on water levels, wave regimes, currents and wind conditions and geophysical and geotechnical studies.
- HMRC’s position was that the expenditure on surveys and studies put the companies in the position to incur expenditure on the provision of plant, but that 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 surveys and 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 surveys and 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.
Both sides appealed to the Upper Tribunal (UT), Which found that the expenditure on surveys and 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 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’, under s.11 CAA 2001, encompasses the costs of design as well as installation. This extends to the 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.
- By applying this wider definition of 'on the provision', the expenditure on almost all of the surveys and studies was incurred 'on the provision of’ the generation assets, meaning capital allowances were available.
- This included all the surveys and 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).
HMRC appealed to the Supreme Court (SC), which found that the costs incurred on studies and surveys were not capital expenditure on the provision of the wind farms, as required by s.11.
- The ordinary meaning of the word ‘on’ imposed a narrow test. There had to be a close connection between the expenditure and the plant provided.
- This contrasted with other phrases in statute which seek a looser nexus, such as ‘in connection with’, ‘relating to’ or ‘with a view to’.
- HMRC’s narrower interpretation of the phrase ‘on the provision of plant’ was supported by Ben-Odeco v Powlson (Inspector of Taxes) [1978] 1 WLR 1093.
- This case emphasised the requirement for proximity between the expenditure and the plant itself.
- The primary cost in relation to the provision of plant is its purchase price, whether that is for an off-the-shelf item or a commissioned bespoke item.
- Case law makes it clear that other costs, such as transportation and installation, can be included as these are inherent in the concept of the plant being 'provided'.
- In Ben-Odeco, Lord Wilberforce referred to a 'limiting curve'. The costs of carrying out studies and surveys which provided the companies with advice about how to choose or design their plant fell well outside of that 'limiting curve'.
- A wider interpretation of s.11 would risk ‘scooping up’ expenditure that should otherwise fall in other sections of CAA 2001.
- This, in turn, would risk disturbing the careful balance between what qualifies and what does not, under the detailed terms of different provisions.
- S.11, and capital allowances generally, reflect the depreciation of capital assets used in a taxpayer’s business, the gradual deterioration of those assets through wear and tear, and the ultimate need to replace them.
- The surveys and studies had only a tangential connection with the diminishing value of the wind farm assets, working against any argument that they should come within s.11.
- While the purpose of s.11 is to incentivise investment in plant and machinery, that purpose does not define the extent of the incentive or the precise boundary between what qualifies and what does not.
- When considering the boundary between what expenditure is, and is not, on the provision of plant, it was not helpful to say that any study or survey that informed or fed into the design of that plant must be regarded as being spent on its provision.
- This was much too broad and, in any event, the costs incurred in obtaining the studies and surveys did not fall close to the boundary beyond which they would have been considered to be on the provision of plant.
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
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Annual Investment Allowance (AIA)
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Long-life assets
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Structures & Buildings Allowance (SBA)
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Full expensing & First Year Allowances
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External links
Orsted West of Duddon Sands (UK) Limited & Ors v HMRC [2026] UKSC 12