Offshore wind developer Ørsted rues Supreme Court tax decision

During the course of planning and designing windfarms, Ørsted spent considerable sums on surveys and studies investigating many different aspects of the environment in which the windfarms would be constructed. Ørsted argued that money spent on surveys and studies would be reflected in its profits shown in its annual financial accounts, and that those costs should be allowed under the capital allowances regime.

The question raised in the case was whether those costs really do qualify for capital allowances under section 11(4) of the Capital Allowances Act 2001 (‘section 11(4)’). If so, Orsted would be entitled to deduct a certain percentage of those costs from income each year when computing taxable profit. 

Capital expenditure will qualify under section 11(4) if certain conditions are met. One such condition is that "it is capital expenditure on the provision of plant." HM Customs & Revenue (HMRC) accepts that the generation assets of the windfarm are treated as a single item, is ‘plant’, and that the expenditure on the reports and studies was capital in nature. The issue was whether the costs incurred in obtaining the surveys and studies to investigate the environment were incurred ‘on’ the provision of the windfarms.

A first-tier tribunal held that most of the expenditure on the studies and reports in dispute did qualify for capital allowances. The Upper Tribunal allowed HMRC’s appeal and held that none of them qualified for the allowance. The Court of Appeal allowed Orsted’s appeal and held that all the expenditure qualified, after which HMRC appealed to the Supreme Court, which has now ruled that the expenditure does not qualify.

Responding, an Ørsted spokesperson said, “We respect the decision by the UK Supreme Court and will take the necessary steps to reach a final resolution with the authorities regarding the projects subject to the decision. While it is too early to be certain about the outcome of those discussions, the financial impact on the projects in question is limited.

“The outcome in this case is regrettable, creating less favourable conditions for the development of critical infrastructure projects such as offshore wind. We will need time to agree on the application of the ruling with the authorities before we can assess the impact on other projects. We also urge the UK government to resume work on revising the tax legislation in this area.”