In Gunfleet Sands Limited & Ors v HMRC [2023] UKUT 260, the Upper Tribunal (UT) held that preliminary studies performed prior to the installation of wind turbines were not incurred on the provision of plant and so did not qualify for capital allowances. 

  • The companies party to the appeal were all part of the Danish Orsted A/S group. The companies were involved in the trade of generating and selling electricity from UK offshore wind farms.
  • As part of the construction of the wind farms, numerous pre-installation studies were carried out in order to assess the best positioning for the wind turbines. The studies were in relation to wind, ocean and seabed conditions, amongst other things.
  • The appellants included the expenditure on these studies, along with the expenditure on the actual wind turbines, as part of their Qualifying Expenditure for capital allowances.
  • S11 Capital Allowances Act 2001 (CAA 2001) sets out that expenditure can be considered qualifying when incurred ‘on the provision of’ Plant and Machinery.
  • Whilst HMRC accepted that the building and installation of the wind turbines and associated cabling (the generation assets) qualified they rejected the claim regarding the studies.
  • The companies appealed to the First Tier Tribunal (FTT).
  • The FTT used IRC v Barclay Curle Co Ltd [1969] 1 WLR 675 (Barclay Curle) to apply a ‘necessary test’. On this basis, the studies were qualifying as they were necessary for the installation of the generation assets.
  • The FTT also rejected HMRC’s assertion that the wind turbines were individual items of plant, instead finding they formed a single piece of plant made up of collective assets directed towards a single purpose.
  • HMRC appealed to the UT on both the single/multiple plant issue and the application of the ‘necessary test’. The appellants also appealed on the basis that the FTT had applied the necessary test incorrectly when disqualifying certain items of expenditure.

The UT found that:

  • The single/multiple items of plant issue was one of fact and degree. The FTT had not erred in law as it had applied the correct principles of deciding whether there was a single operational function to the assets.
  • With regard to the interpretation of s.11 CAA 2001, the Barclay Curle case is the primary source of case law.
  • The key principle here was that expenditure on the construction, transport and installation of plant could be qualifying provided that the effect of the expenditure was the provision of plant.
    • The FTT’s test of necessity did not comply with that principle as expenditure could be necessary but not have the effect of providing the plant. The test to be applied is strict and narrow in interpretation.
    • The FTT erred in law applying the tests that it did.
  • The UT remade the decision and found that the studies did not have the effect of providing the plant.
  • The companies also argued that if the expenditure did not qualify it should be available for revenue deduction. This was dismissed by the UT on the basis that it was still capital expenditure.

The appeal by HMRC on the single/multiple plant issue was dismissed, as were the taxpayers' appeals on whether the expenditure qualified under s.11.

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?

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

Plant & machinery: Allowances
What capital allowances are available on plant and machinery? How do you calculate them? What are qualifying activities?

Long-life assets
What is a long-life asset for capital allowances? 

Super-deduction & First Year Allowances
What is the new Super-deduction allowance? When does it apply and what is the rate of allowance? What other First Year Allowances (FYAs) are available? What is the SR Allowance? What if I dispose of an asset on which the Super-deduction or SR allowance has been claimed?

External links

Gunfleet Sands Limited & Ors v HMRC [2023] UKUT 260

Gunfleet Sands Limited & Ors v HMRC [2022] TC08387


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