Consultation on tax treatment of predevelopment costs

Background

The consultation follows the recent Supreme Court judgment in the case of Orsted West of Duddon Sands (UK) Ltd & others v HMRC [2026} UKSC 12, where the cost of preliminary studies and surveys relating to offshore wind farms did not qualify for Plant and Machinery capital allowances (PMA's), as there was not a close enough connection between the expenditure and the plant provided. 

Following the decision, HMRC have updated their Capital Allowances (CAs) manual at CA20070 on professional fees and preliminaries, confirming that:

• The cost of studies and surveys undertaken at a preparatory or early stage of a prospective investment, such as "... work undertaken to assess feasibility, select a site, gather data to inform the development, or inform whether and how a project will proceed - will not normally be expenditure 'on' the provision of plant or machinery and does not qualify for PMAs. Neither will costs incurred for securing planning consent or similar regulatory approvals."

The consultation

The government believes that while the decision in the Orsted case was clear, there is still some uncertainty for businesses about how the judgment could impact the availability of CA's on wider predevelopment costs. It is keen to know more about:

• The types of predevelopment costs that businesses incur.
  • Respondents are asked to provide examples of predevelopment costs incurred on past or planned future investment projects.
• Why they incur the predevelopment costs, such as for regulatory reasons, to inform business decisions or other purposes.
• Businesses’ understanding of the tax treatment of predevelopment costs following the Orsted judgment and the impact that tax deductibility has on business and investment decisions. Stakeholders are specifically asked:
  • What areas within the definition of predevelopment costs cause uncertainty over the correct tax treatment?
  • Whether the tax treatment of predevelopment costs impacts business and investment decisions.
  • If so, why and what are the impacts on the business?
  • Does the tax treatment in other countries impact whether to invest in those other countries rather than the UK?
  • If there are particular incentives businesses would prefer to see, with supporting evidence where possible.

The overall aim of the consultation is to give businesses the certainty to invest, as this is seen as being crucial to the government's goal of boosting growth in the country.

• It seeks to determine how the tax deductibility of predevelopment costs impacts commercial decision-making, investment viability and the UK’s competitiveness.

The consultation closes at 11:59 pm on 21 September 2026. Responses should be emailed to This email address is being protected from spambots. You need JavaScript enabled to view it.

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?

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 link

Tax treatment of predevelopment costs: Consultation

Question 1: How has the Supreme Court’s judgment in Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2026] affected your understanding of the tax treatment of predevelopment costs?

Question 2: To what extent has the judgment clarified the treatment of these costs in practice?

Question 3: In light of the judgment and HMRC’s updated guidance, are there specific aspects where uncertainty remains? Please provide examples and explain why.

Question 4: What practical challenges do businesses face in applying the current rules to predevelopment costs?

Question 5: Has the judgment affected how businesses structure or incur predevelopment costs? If so, please provide examples, where possible.

Question 6: What types of predevelopment costs are incurred in investment projects?

Question 7: Typically, what proportion of the total capital expenditure for an investment project is incurred on each type of predevelopment cost, and over how long are these costs incurred?

Question 8: Why are these predevelopment costs incurred? For example, are they incurred for regulatory reasons, to inform business decisions, or other purposes? If costs are incurred for multiple purposes, please indicate where this is the case.

Question 9: If an investment project does not go ahead, can any of the predevelopment costs be recovered? For example, through sale of surveys to another business interested in pursuing a similar project.

Question 10: To what extent do you consider that predevelopment costs should qualify for capital allowances or other forms of tax relief? Please explain your reasoning and indicate which types of predevelopment costs you believe are most important to have tax relief.

Question 11: For predevelopment costs where the tax treatment may be difficult to apply, what proportion of overall predevelopment costs do these typically represent?

Question 12: Does the tax treatment of predevelopment costs impact business and investment decisions? If so, why is this and what are the impacts?

Question 13: What is your impression of the tax treatment of predevelopment costs in other jurisdictions? Does this treatment
impact whether to invest in those other jurisdictions rather than the UK?

Question 14: Are there other impacts that the government should be aware of, in relation to the tax treatment of predevelopment costs?

Question 15: How does the tax deductibility of predevelopment costs compare in value to other potential tax changes, such as features of the Corporation Tax system reducing the ability to claim Full Expensing? If there are particular incentives you would prefer to see, please set out what those are and any supporting evidence where possible.