Supreme Court decision on capital allowances for offshore windfarm surveys and studies

The Supreme Court has ruled on an important capital allowances case affecting offshore windfarms and other large infrastructure projects. In the landmark case of Orsted West of Duddon Sands (UK) Ltd and others v HMRC (previously known as Gunfleet Sands), the Court confirmed that pre-construction environmental surveys and technical studies don’t qualify for plant and machinery allowances (PMAs).

The decision overturns last year’s Court of Appeal judgment and provides clarity on how far capital allowances extend for preparatory and design‑related costs.

What is the Orsted West v HMRC case about?

Orsted owns and operates offshore windfarms off the coast of England. Before construction began, the group incurred significant costs on surveys and studies to assess environmental conditions, seabed characteristics, marine and bird life, navigation, telecoms and radar interference and other technical and regulatory matters. Much of this work was needed to support environmental impact assessments and obtain the necessary consents.

HMRC accepted two key points:

• The windfarm generation assets, taken together, are plant for capital allowances purposes.
• The survey and study costs were capital, rather than revenue, expenditure.

The dispute focused on the requirement in section 11(4) of the Capital Allowances Act 2001 that, for capital allowances to be available, capital expenditure must be incurred on the provision of plant. The question was whether the survey and study costs were incurred ‘on’ providing the windfarms.

How did the case reach the Supreme Court?

The case passed through each stage of the tax appeals process before reaching the Supreme Court.

The First‑tier Tribunal found that most of the costs qualified, based on whether the expenditure related to the windfarms’ necessary design.

The Upper Tribunal disagreed and held that none of the expenditure qualified. It took the view that the legislation requires a narrow and close connection with the provision of plant.

The Court of Appeal ruled in favour of Orsted. It decided that studies which informed how plant was designed or installed could fall within section 11.

HMRC appealed to the Supreme Court.

The Supreme Court’s decision

The Supreme Court unanimously allowed HMRC’s appeal.

The Court focused on the wording of section 11(4). It said the word ‘on’ requires a close and direct link between the expenditure and the plant itself. This is a narrower test than phrases such as ‘in connection with’, ‘relating to’ or ‘with a view to’, which are used elsewhere in tax legislation but were not used here.

The Court confirmed that capital allowances are not limited to the purchase price alone. Some additional costs can qualify, such as transport and installation, because they are inherent in providing the plant. However, this extension is deliberately limited.

Why did the environmental surveys and studies not qualify for capital allowances?

The Supreme Court concluded that Orsted’s survey and study costs were too far removed from providing the windfarms themselves.

The expenditure was incurred to obtain information about the site and meet regulatory requirements. It helped Orsted decide how the windfarms should be designed and where they should be positioned. It didn’t form part of building, installing or constructing the windfarms.

Although this work was essential from both a commercial and regulatory perspective, the Court treated it as providing information and advice about how the windfarms should be designed, rather than expenditure on the provision of plant.

Relevant plant and machinery case law

Orsted relied heavily on the House of Lords decision in Barclay, Curle, a case about the construction of a dry dock. In that case, excavation and concrete works qualified for capital allowances because the dock itself was treated as plant and those works were an integral part of it.

The Supreme Court explained that Barclay, Curle doesn’t support a rule that all costs needed to enable plant to be provided will qualify. The excavation works in that case were allowed because they formed part of the plant itself, not simply because they were a necessary preliminary. The Supreme Court’s analysis of Barclay, Curle reinforces that section 11 has a narrow scope.

What was the final outcome in Orsted West v HMRC?

The Supreme Court made clear that the survey and study costs weren’t close to the boundary of what should count as expenditure on the provision of plant. None of the costs qualified for capital allowances, and HMRC’s appeal was allowed in full.

What does this Supreme Court decision mean for businesses?

This decision is particularly relevant for businesses undertaking large, capital‑intensive projects, including renewable energy developments. It confirms that even where preparatory work is essential to a project, the costs will not necessarily qualify for plant and machinery allowances.

When planning major projects, it’s important to identify which costs genuinely relate to acquiring, installing or constructing plant. It’s also important to consider whether other forms of capital allowances or other tax relief are available.

How Saffery supports businesses with capital allowance claims

We review capital projects and capital allowance claims to ensure they reflect current law and maximise reliefs. We also help check previous claims and support businesses with record keeping, elections, assessments and reporting requirements.

If you would like to discuss how this decision may affect your business or current projects, please speak to your usual Saffery contact or Phoebe Hindlet.