Key Facts
- •HMRC and taxpayers appealed a First-tier Tribunal (FTT) decision regarding capital allowances for offshore wind farms.
- •The appeals concerned expenditure on environmental and technical studies (around £48 million).
- •A key dispute was whether wind turbines and cables were a single item of plant or multiple items.
- •The FTT held that the wind turbines and cabling collectively were a single item of plant.
- •The FTT found that only some study expenditure qualified as expenditure 'on the provision of plant'.
Legal Principles
Definition of 'plant' in capital allowances is a matter of fact and degree, considering the nature and function of components and whether they are directed towards a single purpose.
Cole Brothers Ltd v Phillips [1980] STC 518 (House of Lords), IRC v Barclay Curle Co Ltd [1969] 1 WLR 675
'On the provision of plant' includes installation and transport costs, but not all expenditure necessary for plant provision qualifies. The effect of the expenditure must be directly on the provision of the plant itself.
Barclay Curle Co Ltd, Ben Odeco Ltd v Powlson (HMIT) [1978] 1 WLR 1093
The tribunal has jurisdiction to adjust qualifying expenditure amounts even if HMRC only amended the writing-down allowances in the closure notice, provided it relates to the conclusions of the notice.
R (Archer) v HMRC [2018] STC 38, Investec Asset Finance Plc v HMRC [2020] STC 193, Daarasp LLP & Anor v HMRC [2021] UKUT 87 (TCC)
Amounts in a company tax return are not conclusively determined until any appeal has been finally determined, even if other amounts in the return are not being appealed.
Schedule 18 FA 1998 para 88
Outcomes
HMRC's appeal on the single/multiple plant issue was dismissed.
The FTT's finding that the wind turbines and cables collectively constituted a single item of plant was upheld as a matter of fact and degree.
HMRC's appeal on the qualifying expenditure issue was allowed.
The FTT's 'necessary design' and 'safe and effective installation' tests were deemed incorrect. Only expenditure directly on the provision of the plant (e.g., construction, installation, transport) qualifies. The expenditure on studies, even if necessary, was not directly on the plant's provision.
Taxpayers' appeal on the revenue deduction issue was dismissed.
The expenditure, while not qualifying for capital allowances, was deemed capital in nature and therefore not deductible as revenue expenditure.
Taxpayers' appeals on jurisdictional and conclusive determination issues were dismissed.
The tribunal had jurisdiction to adjust the qualifying expenditure figures despite HMRC's error in the closure notice, as it was within the scope of the appeal. The disputed amounts were not conclusively determined because appeals were pending.