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Capital allowances: Where the wind blows


A case concerning several offshore windfarms has found the costs of the turbines, cables and sub-stations can together be single items of plant for capital allowances.

1st Apr 2022
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The case was brought by four offshore windfarm companies that are all part of a Danish parented group, Orsted: Gunfleet Sands Limited (and others) v HMRC (TC 08387).

While relating to offshore wind generation assets, the case dealt with aspects of the plant and machinery allowances legislation that have wider applications.

The case considered two fundamental points:

  • Whether a number of individual assets can collectively be considered as a single item of plant or machinery
  • To what extent can costs that are not themselves items of plant or machinery be deemed to be incurred “on the provision of plant or machinery”.


The development of an offshore windfarm in the UK is long, complicated and expensive. First, operators must carry out a number of desktop studies to decide whether to bid for a lease from the government. If a bid is successful further studies are then required, the cost of which in this case totalled £47.9m.

Each windfarm consists of a collection of wind turbine generators connected together electrically by cables and then further connected via substations to the public grid. There is usually both an offshore and onshore substation. The turbines, cables and offshore sub-stations are called the “generation assets” and the onshore substation the “transmission assets”.

Issues and implications

The case considered six issues, but I have concentrated on two primary issues that have wider implications.  

1. Single item of plant Did the windfarms in their entirety comprise a single item of plant? If they did not, what elements of the windfarms were individual items of plant and machinery?

HMRC accepted that the wind turbines individually were items of plant. But it did not consider the “generation assets” to collectively be a single item of plant. In support, HMRC submitted that the correct test to apply was whether the individual parts of the system comprised a distinct operational entity that carried out distinct operational functions (Atwood v Anduff Car Wash Ltd [1996] STC 110).

The companies contended that each windfarm was a single entity as the turbines were directed towards a “single purpose” of generating electricity. 

The companies submitted that there was no particular test for determining whether a system should be viewed as a single item of plant or whether the individual parts of the system should be viewed as distinct items of plant. It was essentially a question of fact and degree in each case, considering the nature and role of the component parts and whether they were directed towards a single purpose. 

Furthermore, there was no reason why, after determining that the individual parts could be plant (for example, the turbines) you should then stop and look no further to determine whether the individual parts operating together could be considered to be a single entity of plant.

2. Expenditure ‘on provision of plant and machinery’ To what extent was expenditure deemed to be incurred “on the provision of plant and machinery”?

HMRC accepted that expenditure “on the provision” of plant or machinery (s11 CAA 2001) extended to more than the cost of the item of plant or machinery itself. But it contended that while the expenditure on “the studies” put the companies in the position where they could incur expenditure on items of plant, it did not influence the design, construction or installation of the windfarms or the turbines. 

Expenditure incurred on design was too remote and therefore was not incurred directly on the provision of plant. Furthermore, the burden of proof lay on the companies to demonstrate exactly what the money had been spent on and in what amounts, but insufficient evidence had been provided to satisfy the burden of proof.

In contrast, the companies maintained that spend on the studies influenced the design construction and installation of each turbine and the whole of each windfarm. They accepted that the spend was incurred to satisfy regulatory requirements, but this did not prevent it from also informing the design, construction and installation. So, it was incurred on the provision of plant. 

In support, the companies argued that the costs of the studies must have been incurred to construct the windfarm and the turbines (“construction” here meaning a number of processes including design, procurement, manufacture, supply and installation), and those costs related directly to that construction.

In other words, “provision” extends to spend that directly relates to the design of the plant or its installation since designing the plant is as necessary to its provision as is its fabrication. The installation is something that must happen for the plant to function properly. Such costs, therefore, could not be too remote and must qualify for allowances.

Tribunal decision

1. Items of plant The tribunal noted that individual items of plant can be considered on an individual basis (that is as single and separate items of plant) or collectively as together making up a single item of plant. The test to be applied is that set out in Cole Brothers that the component (or individual) parts need to be directed towards a single purpose. It concluded that if the component parts of the windfarm were directed towards a single purpose (which they were in this case, the generation of electricity), then those assets were collectively a single item of plant.

2. On the provision of plant The tribunal noted the parties agreed that “on the provision” extended beyond the price actually paid for the plant. But they disagreed about how far that extended. 

Design concepts

In developing his analysis Judge Popplewell introduced the concepts of “necessary design” and “unnecessary design”. 

  • “Necessary design” was expenditure without which the windfarms or turbines could not generate electricity, so would be operationally useless. 
  • “Unnecessary design” was spend without which the windfarms or the turbines could continue to generate electricity (even if the amount was lower than might otherwise be the case), so would not be operationally useless. 

The judge examined each of the studies in detail and assessed which elements constituted necessary design and which did not. When he concluded on these distinctions, he allowed some and disallowed other expenditure accordingly. 

Single entities 

Just because individual elements of a particular installation are items of plant or machinery, does not mean that you must stop there and cannot then go on to consider if the installation, as a whole, can be deemed to be a single entity of plant. In this case the tribunal found that the windfarms were indeed such single entities of plant or machinery.

When it came to consideration of the elements of expenditure that could be said to be incurred on the provision of plant or machinery, the onus was on the taxpayer to prove what the expenditure related to and then to assess whether that expenditure was on so-called “necessary design” or “unnecessary design”, with the former being allowable expenditure and the latter, disallowed.

Replies (1)

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By Paul Crowley
02nd Apr 2022 17:35

Did the message that carbon free fuel is good for the UK not get sent to HMRC?

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