The judgment was the culmination of litigation spanning the First-tier Tribunal, Upper Tribunal and the Court of Appeal, and turned on a deceptively simple question: did the word "on" in section 11(4) of the Capital Allowances Act 2001 cover expenditure incurred on environmental, metocean, geophysical and geotechnical studies carried out before an offshore wind farm is built? The Supreme Court unanimously said no.
What the Court actually decided
The Court applied a narrow reading of the phrase "capital expenditure on the provision of plant." It held that a close and direct link is required between the expenditure and the plant itself, closer than phrases like "in connection with" would demand. Costs such as transport and installation can qualify for relief, but only because they are inherent in providing the plant. Even that extension is deliberately limited.
The approximate £48 million spent by Ørsted on pre-construction surveys and studies across four wind farms did not pass that test. The environmental impact assessments, seabed investigations and marine ecology surveys (all necessary to obtain Crown Estate consent and inform design) were held to be too remote from the physical assets of the wind farm to qualify.
Why this matters beyond Ørsted
For those involved in offshore wind projects across their full lifecycle, the commercial reality is that pre-FID expenditure on environmental consenting and seabed surveys is among the most significant cost items in the development phase. These are not optional studies. They are a fundamental requirement of the NSIP consenting process under the Planning Act 2008 and, in many cases, a condition of lease awards through Crown Estate leasing rounds.
The ruling creates a real tension. The Government has set a target of 43-50GW of offshore wind by 2030. CfD auction rounds are ongoing. Yet the Supreme Court has now confirmed that one of the core mechanisms developers rely upon to recover development-phase costs through the tax system does not apply as broadly as many had assumed.
The wider concern: HMRC's likely stance
The direction of travel it signals for HMRC's approach to the infrastructure sector could be far-reaching.
HMRC is likely to take a restrictive approach going forward, pointing to increased enquiry activity across infrastructure, more disputes reaching the courts and, potentially, a more aggressive stance on capital allowances more broadly. The uncertainty around how narrowly "on the provision of" should be interpreted in other contexts is real. Developers, their lenders and their advisers will need to factor that into project planning, tax structuring and pricing in M&A transactions.
What should developers and investors be doing now?
Those with live projects or portfolios should review any capital allowances claims made or anticipated in respect of pre-construction development expenditure. The risk profile of historic claims will need to be reassessed in light of the Supreme Court's close connection test.
Looking ahead, there are questions about how costs can be structured and documented to bring them as close as possible to the plant, and whether the UK Government could consider legislative intervention to clarify or broaden the capital allowances regime for strategic infrastructure. Ørsted's characterisation of the outcome as "creating less favourable conditions for the development of critical infrastructure projects" deserves to be taken seriously by policymakers.
We work with developers, investors and lenders across the full spectrum of renewable energy transactions. If you'd like to discuss the implications of this judgment for your projects or portfolio, we would be very happy to discuss further, so please get in touch with our team.
