CAs allowed on hydroelectric power station

In HMRC v SSE Generation Limited [2023] UKSC 17, the Supreme Court found that items constructed for the collection and transmission of water in connection with a hydroelectric power station were neither a tunnel or aqueduct. The expenditure qualified for capital allowances.

• SSE Generation Limited claimed Capital allowances on the construction of a large-scale hydroelectric scheme at Glendoe, Fort Augustus in Scotland, between 2006 and 2012.
  • The power station generated electricity by using water at high pressure taken from a dammed area to drive a water turbine.
• HMRC challenged the capital allowance claim in respect of around £200 million of expenditure, on the basis that it did not qualify.
  • Section 22 (List B) of the Capital Allowances Act 2001 precludes expenditure from qualifying where it is on a 'tunnel, bridge, viaduct, aqueduct, embankment or cutting'.
• The key point at issue was whether items constructed for the collection and transmission of water to, through, and from, the hydroelectric power station constituted a ‘tunnel’ or an ‘aqueduct’.
• Following appeals to the First Tier Tribunal (FTT), Upper Tribunal (UT) and Court of Appeal (CoA), HMRC appealed to the Supreme Court.

The Supreme Court found that:

• The CoA had identified two possible ordinary meanings of both the words ‘tunnel’ and ‘aqueduct’.
  • In this instance, it is correct to consider the context in which the words were written. This might involve relying upon a thematic connection which explains the grouping of items in a list.
• The theme linking the group in which ‘tunnel’ is included is that of structures related to the construction of transportation routes or ways.
  • A ‘tunnel’ is therefore a subterranean passage through an obstacle for a way (such as a railway, road or canal) to pass through.
• The term ‘aqueduct’ is listed immediately after "bridge, viaduct" and in the context of a theme of structures relating to the construction of transportation routes or ways.
  • In that context, the term ‘aqueduct’ refers to a bridge-like structure for carrying water (such as where a canal is carried over a river or valley), which includes, but is not limited to, carrying a canal.
• These meanings of ‘tunnel’ and ‘aqueduct’ were consistent with that reached by the CoA, which had allowed SSE Generation Limited's capital allowance claim.
  • HMRC's interpretations of ‘tunnel’ and ‘aqueduct’, which would have included SSE Generation Limited's expenditure, were rejected. 

HMRC’s appeal was dismissed.

Useful guides on this topic

What expenditure qualifies for plant & machinery allowances?
What is plant and machinery? What expenditure qualifies as plant and machinery? What is treated as part of a building? 

Structures & Buildings Allowance (SBA)
Who can claim the Structures and Buildings allowance? What expenditure is eligible? How to make a claim? 

Enhanced Capital Allowances: Energy saving plant (inc. vehicles)
What are Enhanced Capital Allowances (ECAs)? What is energy-saving plant and machinery? What allowances are available?  

Annual Investment Allowance (AIA)
What is the Annual Investment Allowance? What are the limits? What expenditure qualifies? 

Capital allowances: Rates and allowances
What different types of capital allowances are available? What are the current and past rates of allowances?

External link

HMRC v SSE Generation Limited [2023] UKSC 17