A recent court appeal has broadened the range of activities that may qualify for capital allowances on large-scale projects. This is particularly relevant for the Infrastructure & Renewables sector, but could apply to projects in a variety of other sectors too.

In the case of Orsted West of Duddon Sands (UK) Ltd & Others v HMRC [2025] EWCA Civ, the appeal centres on the eligibility for plant and machinery capital allowances in relation to expenditure incurred during the development of offshore wind farms here. The Upper Tier Tribunal (UTT) had denied capital allowances for certain studies and surveys conducted prior to the construction of the wind farms. Orsted, the parent company of the Gunfleet group, appealed against this decision.

Background

Initially, the First-tier Tribunal (FTT) had examined various types of expenditure on environmental and other studies, determining that some qualified as expenditure on plant and machinery, while others did not. Both Orsted and HMRC appealed these findings - Orsted believing that further costs were eligible, and HMRC believing none of the disputed costs were eligible. The case then went to the Upper Tier Tribunal, which sided with HMRC - ruling that the expenditure related to the studies were not directly connected to the provision of plant and therefore did not qualify for capital allowances.

Court of Appeal decision

Following Orsted’s appeal against the UTT, The Court of Appeal disagreed with the UTT and ruled in favour of Orsted. The court took a broader interpretation of the phrase "on the provision of plant" under section 11 of the Capital Allowances Act 2001. It concluded that costs associated with studies that informed the design and installation of plant and machinery - such as environmental assessments, ornithology studies, and geotechnical surveys - could qualify for capital allowances.

The court emphasised the following key points:

• Expenditures related to the design and preparatory stages of plant and machinery, including studies that influenced the installation or construction process, can qualify for capital allowances.
• The scope of "on the provision of plant" extends beyond the physical acquisition or installation of the plant to include the costs of design and installation preparation.
• To qualify for capital allowances, the expenditure must be related to plant or machinery that was eventually acquired or constructed and must not arise from unique circumstances particular to the taxpayer – i.e., the costs must be relevant to all similar projects and not just due to one person’s circumstances.

The ruling allowed capital allowances for a range of studies, including those on landscape, seascape, visual assessments, benthos, ornithology, fish and shellfish studies, noise assessments, and telecoms and radar interference studies, among others. The only remaining issue was the cost of scoping documents, on which the court sought further submissions.

Key implications

The Court of Appeal’s decision is significant because it expands the range of expenditures that may qualify for capital allowances in large infrastructure projects, particularly in sectors like renewable energy, but also for other large-scale projects involving plant and machinery. It clarifies that costs incurred in preparatory work, including studies that inform the design and installation of plant, can qualify for capital allowances.

The judgement also highlights the need for businesses to carefully assess their expenditures to determine which are directly related to the provision of plant and machinery, as these may now be eligible for capital allowances, even if they are not directly tied to the physical installation process.

It is unclear at this stage whether HMRC will seek to appeal the decision, therefore, unless reversed by the Supreme Court, the case sets an important precedent in interpreting the scope of "on the provision of plant" under the CAA 2001.

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