The Orsted West of Duddon Sands case which was recently concluded in the Supreme Court is an interesting, if a little disappointing case. At each tier of the court system, the prior ruling was overturned, showing how contentious this particular issue is.

The case concerns large windfarm projects. These are projects that can take decades to reach fruition and cost hundreds of millions of pounds. The costs in dispute in this case amounted to £48m and concerned the following studies:

  • Landscape, seascape and visual impact assessments
  • Benthos studies
  • Ornithology and collision risk studies
  • Fish and shellfish studies
  • Marine mammal studies
  • Archaeology, wrecks and cultural heritage site studies
  • Noise assessment studies
  • Telecoms and radar interference studies
  • Traffic, transport and access studies
  • Metocean studies
  • Geophysical and geotechnical studies
  • Socio-economic and tourism assessments
  • Scoping studies
  • Project management costs

The FTT concluded that scoping studies and socio-economic and tourism assessments were not qualifying expenditure, and the taxpayer did not appeal these decisions. The FTT also concluded that project management costs were allowable preliminaries and HMRC did not appeal this conclusion.

The question posed was whether the remaining costs qualified for capital allowances under s11(4) of Part 2 CAA 2001, where:

  • "The expenditure is capital expenditure on the provision of plant and machinery
  • It is incurred for the purposes of the qualifying activity (i.e. a trade) and
  • The person incurring the expenditure owns the plant and machinery as a result of incurring it."

What does ‘on the provision of plant’ encompass?

HMRC accept that purchase price, delivery, transport and installation all qualify as expenditure incurred ‘on the provision of plant’. However, they contended that the definition of provision should mean ‘acquisition, supply or making available for use’ and emphasised a point from the Barclay Curle case that ‘provision’ is focused on ‘making, doing and constructing’.

The Supreme Court accepted HMRC’s appeal that concluded on each of the following:

  • Studies which help to determine viability of a project (economic or otherwise) do not constitute expenditure on the provision of plant
  • Studies undertaken to allow planning and legal consents do not constitute expenditure on the provision of plant
  • Studies reviewing the impact that a project will have on flora, fauna or humans do not constitute expenditure on the provision of plant
  • Studies which determine where or whether to install a windfarm, or the best configuration of that windfarm, are not expenses incurred on the provision of plant
  • Studies which gather data on what to purchase ‘off the shelf’ are not expenses incurred on the provision of plant

HMRC’s appeal at paragraph 55 does allow some wiggle room in relation to advice and studies undertaken to inform the design of plant. It states:

"If the end point of an advisory process is a decision to have a particular kind of plant made, then the legislation does not exclude the possibility that the cost of creating the actual design drawing for that final plant made real by fabrication may be eligible for relief."

This could mean that a certain amount of the metocean studies and geophysical or geotechnical studies that are necessary to design appropriate functional plant may be allowable on a case-by-case basis.

It was acknowledged by the court that the majority, if not all, of these studies are a necessary part of the process of obtaining permission to erect a windfarm, however they would not allow the original intention of the policy regarding capital allowances (i.e. to incentivise development) to overrule the specific legislation determining allowable and disallowable capital expenditure.

This ruling may not align with the government’s plans as recently enacted in the Planning and Infrastructure Act 2025 which aimed to get dozens of new windfarms built in quicker timelines.

The government had promised to open a consultation on the tax treatment of pre-development costs, but this was postponed in April 2025 in light of the above case. It may be time to revisit the need for this consultation both to provide clarity and to protect inward investment on projects such as these.

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