This case is an intriguing example of how a long running dispute is appealed and taken before the different stages of the Courts of Law to establish how to apply the legislation correctly. 

Between 2006 and 2009, SSE Generation Limited constructed a hydro-electric power station in Gledoe, Scotland and had claimed allowances on various assets within the plant.  This not only included the generating equipment but also the headrace and water gathering system.

HMRC had disputed certain allowances claimed by SSE on the basis they deemed the assets to be structure and not plant, including items constructed for the collection and transmission of water to go through.  HMRC deemed them to be ‘tunnels’ and ‘aqueducts’ and so fell into s22 (1) (a) and (b).  If they were deemed to fall into s22 (1) (a) and (b), then the expenditure on these disputed items would not qualify for capital allowances. 

The value of the disputed items was circa £200m.

Following an appeal by the taxpayer, the First Tier Tribunal (FTT) held that SSE was entitled to some of the allowances claimed.  This included water conduits to gather water from the reservoir, the headrace carrying water to the turbine and tailrace carrying water away from the turbine. The FTT concluded that they were plant in accordance with s23, item 22, List C.

HMRC appealed the FTT ruling to the Upper Tier Tribunal (UT).  The UT dismissed the appeal and again largely found in SSE’s favour.

HMRC then appealed to the Court of Appeal (CA).  Again there was a different interpretation of the legislation and application to the hydroelectric power station and some of the findings by the FTT were overturned. The majority however were again found in favour of the taxpayer.

In 2023, HMRC appealed to the Supreme Court (SC). All 5 members of the SC unanimously dismissed HMRC’s appeal.  They concluded that the items being disputed were not ‘tunnels’ nor ‘aqueducts’ within the meaning of section22 List B of Chapter 3, Part 2 CAA2001.  They considered it was important to reflect on other ordinary meanings of the word tunnel and aqueduct.  The £200m of allowances that were under dispute are now deemed to be qualifying for capital allowances.

Lovell Consulting Comment

Capital allowances can be complex and different conclusions are reached by individual members of the judiciary as well as taxpayers and their advisors. 

It highlights the importance of careful identification and segregation of all assets and expenditure.  Lovell Consulting can help with this.

It also highlights the maxim of ‘if at first you don’t succeed, try try again…..’

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