Case Law Updates

Last year a capital allowances case arose around an aspect of the capital allowances legislation relating to Section 11 Capital Allowances Act 2001 (CAA 2001). The case tackles a complex area of capital allowances legislation, what can be classified as “Qualifying Expenditure On the Provision of Plant”.

The case of Gunfleet Sands Limited and others v HMRC [2022] TC08387 is centered around the development of UK offshore wind farms by four subsidiaries of Orsted A/S. His Majesty’s Revenue and Customs (HMRC) had accepted that the turbines and cabling costs themselves qualified for capital allowances but denied expenditure, of approximately £48 million, for the various studies (environmental and geophysical) and project management incurred by the companies. As we move towards more green energy options, the case raises a lot of important points of principle for other claims, as installation of turbines can involve substantial amounts of expenditure and thus capital allowances.

Hot on the heels of the SSE Generation case, we have another energy provider challenging the definition of what is and is not “plant”.

Again, this case shows that the definition of what is and what isn’t “plant” is not always clear and each case should always be reviewed on its own merits, especially where large amounts of expenditure have been incurred. In contrast to the SSE case, here the appellants case was dismissed and the items were not held to be plant.

This is an employee’s tax case concerning claiming capital allowances on expenditure on two caravans may appear to have no relevance to many of our readers. However, this case is a reminder that we cannot assume what will qualify as plant and machinery based on prior claims, we must always go back to first principles.