On 15 April 2026, the Supreme Court unanimously ruled that costs incurred by Ørsted (a global offshore energy company) on environmental surveys and studies conducted during the planning stages of its offshore windfarms did not qualify for capital allowances.
On capital allowances
UK Supreme Court narrows scope of "expenditure on the provision of plant" in Orsted West of Duddon Sands
Overview
What has happened?
The Court held that the statutory requirement for expenditure to be "on the provision of" plant demands a close connection between the money spent and the plant itself. Costs of pre-construction surveys and studies — however necessary they may have been to the overall project — fell well outside that boundary.
Businesses involved in large-scale infrastructure projects cannot assume that all capital costs incurred in connection with the building plant will qualify for UK capital allowances. The statutory test is narrow, and the Court has confirmed it should stay that way.
The full judgment can be found here: Orsted West of Duddon Sands (UK) Limited and others v Revenue and Customs [2026] UKSC 12.
How did it come to this?
Ørsted owns and operates offshore windfarms off the coast of the UK, including one at West of Duddon Sands (near Barrow-in Furness) comprising 108 wind turbines.
Constructing a windfarm is a lengthy and complex project. Each turbine is individually designed to account for the characteristics of the seabed and surrounding environment. Before construction can begin, the developer must obtain various regulatory consents, and to secure those consents, must submit environmental impact assessments supported by technical and scientific surveys and studies. Without completing the surveys, a windfarm cannot be designed and built. It was Ørsted's expenditure on these surveys and studies at issue in this case.
The turbines are considered plant for UK tax purposes and, as such, Ørsted's expenditure on the provision of the turbines qualified for capital allowances. The question in dispute was whether the company's expenditure on the surveys should be included as part of the capital expenditure treated as "on the provision of" the turbines.
HM Revenue & Customs (HMRC) decided it should not, and disallowed Ørsted's claim for capital allowances. Ørsted appealed and the case has produced different answers from each successive court: the First-tier Tribunal allowed Ørsted's appeal for most of the costs; the Upper Tribunal disallowed all of them; the Court of Appeal allowed all of them. HMRC appealed and the matter has finally been settled in their favour by the Supreme Court.
Why does it matter?
Capital allowances are a fundamental part of the UK tax system. They exist because, when a business computes its taxable profits, it cannot normally deduct the full cost of capital assets in the year they are purchased. Instead, the capital allowances regime allows a set percentage of qualifying expenditure to be deducted from a business' profits each year, reflecting the gradual deterioration of those assets across an approximation of their useful economic life, thereby matching the cost of the asset with the income it generates.
Without this mechanism, a business' taxable profits could be overstated because the computation would take no account of the need to replace wasting assets. Capital allowances are tax depreciation.
For large infrastructure projects (including windfarms) the sums at stake will usually be significant. In this case, the disputed amounts totalled approximately £48m. The question of where the line falls between qualifying, and non-qualifying, expenditure has real-life financial consequences.
What was the issue?
The statutory test requires "capital expenditure on the provision of plant". Both parties agreed that the windfarm turbines were plant and that the expenditure on the surveys was capital.
The issue, then, was whether the capital expenditure on the surveys was incurred "on" the provision of the turbines plant.
Very broadly, Ørsted argued that "on the provision of" should be read broadly: if expenditure was necessary to provide the plant, it should qualify. HMRC, however, argued that the test is much narrower such that the word "on" requires a close connection between the expenditure and the items of plant (in this case the turbines): pre-construction surveys informing the design of the plant do not, HMRC argued, meet that test.
Why did the Supreme Court allow the appeal?
Ørsted advanced four main arguments in support of its position. The Court considered each one carefully before rejecting all of them.
"On" means "on".
On the main argument – that 'on' should be read broadly – the Court held that Parliament chose the word "on" deliberately and that the statutory test, "on the provision of" is very narrow.
In the words of Lady Rose, delivering the unanimous judgment:
"… the requirement that the expenditure must be “on” the provision of plant indicates a narrow test, requiring a close connection between the expenditure and the plant provided. There are many statutory provisions in relation to tax and other topics that use other phrases to connote a much looser nexus such as “in connection with” or “relating to” or “with a view to”. Those phrases do not mean the same as “on”. Parliament has used a different test here and, in my judgment, it requires a close connection."
Case law supports a narrow reading.
Ørsted had relied on an old case (Inland Revenue Commissioners v Barclay Curle & Co Ltd), decided by the House of Lords in 1969, to support its argument in favour of a broad reading of statute.
The Barclay Curle case decided the cost of excavating and concreting a dry dock basin was expenditure "on" the provision of plant (in that case, the dry dock). It was on this authority that Ørsted argued that pre-construction capital expenditure necessary to provide the plant should qualify.
The Court, however, disagreed holding instead that Barclay Curle supported the opposite view. The reason the Barclay Curle expenditure was allowed was that work on excavating the basin was treated as an integral part of the plant itself, and the expenditure was incurred 'on' the dry dock itself. The House of Lords found the question of whether the cost of excavation qualified to be delicately balanced. That, Lady Rose judged, was inconsistent with Ørsted's position because if the test were as broad as Ørsted contended the House of Lords would not have found the question difficult to resolve.
The judgment also draws on another (1978) House of Lords case, Ben-Odeco v Powlson (Inspector of Taxes). In that case, fees and capitalised interest incurred on loans used to finance the construction of an oil rig did not qualify because there was insufficient proximity between the fees and interest and the provision of plant (the oil rig).
Adopting Lord Wilberforce's description in that case of a "limiting curve" being drawn around the plant itself (not the wider costs of the project), Lady Rose held that, Ørsted's "studies and surveys [were not] close to the boundary between what should be regarded as “on” plant and what is too far away from the plant itself to be so regarded".
"Off-the-shelf" comparisons do not work.
Ørsted also advanced a 'fairness' argument based on the importance of applying tax provisions in the same way to taxpayers in the same economic circumstances.
The argument was broadly that where a business buys plant 'off-the-shelf', all the supplier's design costs are embedded in the price paid, but the full price will qualify for capital allowances. It should make no difference, Ørsted argued, if a taxpayer instead incurs those design costs separately for a bespoke item.
The Court was unimpressed, preferring instead to focus again on the 'main point' being the proximity of the expenditure to the provision of the plant. A supplier's price reflects all manner of costs, revenue as well as capital, and the composition of that supplier's price says nothing, the Court decided, about whether "the price is qualifying capital expenditure in the hands of the taxpayer who purchases the item".
Policy purpose does not extend statutory words
Finally, Ørsted urged the Court to adopt the broad interpretation of the regime based on the underlying policy purpose to incentivise investment.
This was an interesting, and apposite, line of argument that touches on the importance of the tax regime in supporting capital investment, enhancing industrial productivity, and (presumably), in this case, developing green renewable energy technologies to help tackle the climate challenge.
The Court acknowledged the incentive purpose of capital allowances but held, "[o]ne cannot rely on the broad purpose of a provision to define where the precise boundary lies between what is caught and what is not caught"; the generosity of the provision is limited by its legislative scope.
So what?
The decision of the Court has immediate practical implications for any infrastructure business undertaking capital projects, particularly in sectors where extensive pre-development work is necessary or unavoidable.
Some points to consider include:
Assess what may still qualify
Despite confirming the narrowness of the test, the judgment does not preclude all pre-production expenditure from qualifying for capital allowances.
The ruling emphasises the importance of showing a sufficient proximity between the costs in question and the actual provision of the plant; of ensuring the costs incurred sit inside Lord Wilberforce's "limiting curve", rather than outside it. Whether or not that is the case will always be a question of fact and circumstance.
To illustrate, in this case, HMRC both:
(a) reserved its position on whether the cost of producing the final technical drawings and specifications which are then “made real” by the manufacturer could be recoverable, and
(b) accepted that if further surveys and studies were conducted during the final stages of fabrication or installation of the turbines, the costs incurred on those surveys and studies may qualify as being “on the provision of plant” either because, (i) they would then be part of the production process, or (ii) they would be part of the installation.
Review existing claims
Businesses with open capital allowance claims that include predevelopment costs should review those claims considering the narrowness of the test outlined in the ruling. Where such costs have been included as qualifying expenditure for capital allowance claims, there is now an elevated risk of challenge from HMRC.
Plan for future projects
For future projects, it is worth considering how contracts, procurement, and the phasing of work can be structured to (a) maximise the proportion of expenditure that falls within the narrower boundary established by the Court ruling, and (b) enhance protection for tax risk exposures.
The availability (or otherwise) of allowances will also affect project economics, pricing, and calculations of rates of return for investment projects.
Engage with policy development
There are two areas where UK tax policy is currently evolving in this area.
First, beginning in July 2026, HMRC will launch a new Advance Tax Certainty Service (ATCS). The ATCS is intended to provide major investment projects (with a lifetime qualifying project expenditure of at least £1bn) with legally binding certainty on tax treatment in advance. The service aims to support the government’s efforts to increase long-term economic growth in the UK, encouraging large-scale investment projects by providing up-front clarity on tax issues and reducing uncertainty for businesses. The ATCS will be available for capital allowance issues.
Second, at its first Budget (in autumn 2024), following a commitment in the Corporate Tax Roadmap (October 2024), the government announced plans to publish a consultation "to explore the tax treatment of predevelopment costs". The consultation was postponed shortly after Ørsted's 'win' in the Court of Appeal (in March 2025) but will, it is hoped, now proceed swiftly. The original aim of the consultation was to "encourage investment in renewable energy and major infrastructure projects" which the government consider a "core pillar of [its] Growth mission". The consultation will provide businesses affected by this ruling with an early opportunity to explain the impact of drawing the "on the provision of" test so narrowly and help the government understand the importance of the capital allowance regime on major infrastructure investment and promoting long-term economic growth.
How Travers Smith can help
Businesses need to be aware of the consequences of the ruling in this case. They should reassess deal economics and structures, their assumptions on the validity of claims for capital allowances for predevelopment costs, and plan accordingly.
We advise businesses on their capital allowances position across all corporate transaction types. We can help stress‑test deal structures and advise on appropriate capital allowance planning. Our policy practice can assist in presenting the interests of businesses during the consultation process either directly or via our membership of several influential representative and professional bodies.
For more information on this topic or how we can help please contact a member of our tax team.
