The Supreme Court (SC) decision in Orsted West of Duddon Sands (UK) Ltd v HMRC (formerly Gunfleet Sands) has overturned the Court of Appeal’s (CoA) decision that certain pre-construction expenditure incurred in the development of offshore windfarms could qualify as capital expenditure under section 11 of the Capital Allowances Act 2001 (CAA 2001).
The Supreme Court’s decision
The SC held that preliminary expenditure, such as geotechnical surveys, environmental impact assessments and metocean studies, was not expenditure ‘on’ the provision of plant or machinery and, accordingly, did not qualify for relief under the capital allowances regime.
The SC considered the issue before it to be one of statutory interpretation. In particular, it focused on the use of the word ‘on’ in the phrase ‘expenditure on the provision of plant or machinery’, concluding that this wording imposes a narrow test requiring a close connection between the expenditure and the plant provided. The SC contrasted this wording with other statutory formulations that connote a broader nexus, such as ‘in connection with’, ‘relating to’ or ‘with a view to’.
The SC examined the leading authorities of Barclay Curle and Ben-Odeco and considered that these cases supported a narrower construction of the phrase ‘on the provision of’. In particular, the SC noted that the House of Lords considered whether excavation works to build a dry dock in Barclay Curle was already finely balanced, and clarified that the plant in Barclay Curle included the excavation and concrete as expenditure on these aspects was ‘on’ the provision of plant (such as pumps) which were necessary for the dry dock.
The SC considered there was a ‘limiting curve’ to what can properly be regarded as expenditure ‘on’ the provision of plant. Applying the principles derived from the leading authorities, the SC concluded that the preliminary expenditure in issue fell “well outside the limiting curve”.
