What was the case about?
The respondents are members of the Orsted Group, which owns and operates offshore wind farms in England. During the planning and design of those wind farms, Orsted spent considerable sums on surveys and studies investigating the environment in which the wind farms would be constructed. The central question was whether those costs qualified for capital allowances under section 11(4) of the Capital Allowances Act 2001 ("CAA 2001"). It was common ground that the expenditure was capital in nature; the dispute was solely about whether it qualified for the allowance.
Capital allowances allow a business to deduct a percentage of qualifying capital spending from taxable profits each year, spreading tax relief over time. The allowances are a significant component of the economics of major capital projects. The ability to include survey and study costs, which can run to tens of millions of pounds, can make a meaningful difference to a project's after-tax returns.
HMRC opened enquiries into the respondents' capital allowances claims and amended their tax returns to disallow survey costs totalling almost £50 million.
What surveys were in dispute?
The surveys and studies at issue covered a wide range, including environmental impact assessments; studies of wind, waves, currents, and tides; and geotechnical investigations. Most were carried out to support the regulatory consent process; others were necessary for the engineering design of the wind farms. There was no dispute that Orsted needed this information to design and build its wind farms. The question was whether that was enough for the expenditure to qualify as "capital expenditure on the provision of the plant".
The legal issue: What does "on the provision of plant" mean?
Capital expenditure qualifies under section 11(4) of the CAA 2001 if, among other conditions, "it is capital expenditure on the provision of plant." HMRC accepted that the wind farm generation assets constitute "plant" and that the survey expenditure was capital in nature. The sole issue was whether those costs were incurred "on" the provision of the wind farms, or whether they were preparatory, advisory costs ultimately too remote from the plant itself.
The case has been heard at four levels of the court system, each reaching a different conclusion. The First-tier Tribunal allowed most of the taxpayers' claims; the Upper Tribunal disallowed all of them; and the Court of Appeal reversed the decision again, holding that all the survey costs qualified, on the basis that any expenditure that "informed" the design or installation of the plant was spent "on" its provision. HMRC appealed to the Supreme Court.
What did the supreme court decide?
The Supreme Court unanimously allowed HMRC's appeal. The Supreme Court's reasoning turned on three key points:
- The word "on" demands a close connection – The Court held that the word "on" in section 11(4)(a) CAA 2001 demands a close connection between the expenditure and the plant provided. Unlike looser statutory formulations such as "in connection with" or "with a view to" the word "on" sets a narrow test. It is not enough that money was spent during the broad process of developing and building a wind farm.
- The surveys are simply too remote from the plant – The Court rejected the argument that any study that "informs" or "feeds into" the design of plant is spent "on" its provision. Qualifying expenditure is primarily the purchase price, whether off-the-shelf or bespoke, together with costs such as transport and installation. Surveys and studies that advise a business on how to choose or design its plant fall well outside that scope.
- The "off-the-shelf" comparison does not help – Orsted argued that a business buying plant off-the-shelf gets relief on the full purchase price, including the manufacturer's embedded design costs, so a business commissioning bespoke plant should receive equivalent relief. The Court disagreed. The purchase price is assessed as qualifying expenditure in the hands of the taxpayer claiming the allowance; HMRC has never dissected it to strip out the supplier's underlying costs, and there is no basis for treating the taxpayer's own preparatory costs as equivalent.
The Court added that the purpose of capital allowances, reflecting depreciation through wear and tear, further supported the narrow reading, since surveys have only a tangential connection with the diminishing value of the wind farm assets.
Why does this matter?
This is a significant ruling, and not only for offshore wind developers. Its reach extends to any business that undertakes large-scale, capital-intensive, infrastructure projects requiring extensive preliminary surveys and environmental assessments. The Court of Appeal's ruling had provided a favourable basis for claims across the industry. The Supreme Court's reversal now calls those claims into question.
Businesses that have already claimed capital allowances on survey and study costs will need to consider whether those claims remain defensible in light of a unanimous Supreme Court ruling. For projects in development, survey costs incurred during the planning phase will not provide capital allowances, and financial models will need to be updated accordingly. In the context of asset acquisitions and M&A involving energy assets or project companies, buyers should assess whether any existing claims are at risk and ensure appropriate protections are in place.
Businesses should review any existing capital allowance claims that include survey or preparatory costs, particularly where those claims are subject to HMRC enquiry. Financial models may need to be updated to reflect the ruling, and Consideration should be given to whether alternative reliefs, specifically research and development relief, where there is a scientific or technological basis, or grant funding, may be available. Clear records of the nature, timing and purpose of expenditure should be maintained, and early engagement with specialist tax advisers on new projects is strongly recommended.
Comment – a blow to the green economy
While this new clarity (not warmly received by our clients in the project development market) applies across all energy and infrastructure categories, spanning renewables, nuclear and fossil‑fuel‑related developments, it is difficult to avoid the conclusion that it risks undermining progress in the fight against climate change. In the longer term, it is also likely to contribute to higher energy costs and increase fuel poverty.
The UK is now spending roughly two to three times more each year on green energy infrastructure and the electricity grid upgrades required to support electrification than on new oil and gas investment, and with that disparity continuing to widen, this decision disproportionately affects the growing green economy at a moment when it is already under significant pressure.
For renewable energy developers in particular, this change increases early-stage development expenditure, which is already the riskiest phase of the project lifecycle and requires the most expensive capital. The planning system's inherent unpredictability, exacerbated by increasingly coordinated opposition to large-scale developments, only adds to that burden.
This decision comes at a difficult time for the renewables sector, with geopolitical uncertainty adding to an already demanding domestic landscape. The UK's stated policy objectives of containing energy costs, reducing fuel poverty, and building a secure, low-carbon energy supply, require sustained investment in infrastructure at scale. In our view, this ruling risks working against those objectives, and there is a strong case for Government to consider targeted legislative amendments to restore the position.
