The Supreme Court, unanimously overturning the decision of the Court of Appeal, has decided that expenditure on numerous studies and surveys conducted for the purpose of planning and designing windfarms in UK waters does not qualify for plant and machinery capital allowances under Part 2 of the Capital Allowances Act 2001 (‘CAA 2001’).
The studies and surveys in question included several environmental studies (including on risks to sea life, bird life, archaeological and cultural sites, and on the human and social impacts of the windfarms), and studies and surveys on the nature of the sea and sea floor where the windfarms would be situated. There was no doubt that the expenditure on these studies and surveys was capital in nature. The question before the Supreme Court was whether the expenditure was “on the provision of plant” for the purposes of section 11(4)(a) CAA 2001.
This basic and apparently simple question had starkly divided the lower Courts, with the Upper Tribunal having decided the question entirely in favour of HMRC and the Court of Appeal having decided in entirely in favour of the taxpayers. The issue has now been conclusively decided in favour of HMRC, with the Supreme Court holding that both the wording of section 11(4)(a) CAA 2001 (read in context) and the leading cases of Inland Revenue Commissioners v Barclay, Curle [1969] 1 WLR 675 and Ben-Odeco v Powlson (Inspector of Taxes) [1978] 1 WLR 1093 indicate a narrow construction of the test. Furthermore, the Supreme Court rejected the taxpayers’ argument that a narrow construction leads to different treatment between a taxpayer purchasing plant ‘off-the-shelf’ and a taxpayer commissioning a bespoke item of plant.
The Supreme Court also stated that the overarching purpose of the regime for plant and machinery capital allowances to incentivise investment did not define where the precise boundary lies between what does and does not qualify as expenditure “on the provision of plant and machinery”. The Supreme Court declined to draw a bright line, but was still able to conclude that the expenditure at issue in this case did not fall close to the boundary.
Elizabeth Wilson KC, Angharad Parry KC and Joshua Stevens acted for HMRC.
You can read a copy of the judgment here.
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