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

Small acorn
If you like our content come and join us.

Thousands of accountants and advisers and their clients use as their primary TAX resource.

Register with us now to receive our receive our FREE SME Topical Tax Update & newletter