The Supreme Court delivered their judgement in the Orsted West of Duddon Sands (UK) Limited case, previously known as Gunfleet Sands, on 15 April 2026.
HMRC have won their appeal. The decision was unanimous and based on HMRC’s argument that the expenditure was too remote from the provision of the plant.
The Court stated that the term “on the provision of plant” should be interpreted narrowly. There needed to be a “close connection between the expenditure and the plant”. The primary category of cost that fell to be regarded as on the provision of plant is the purchase price. Whilst other costs such as transportation and installation can qualify the Court noted that this is only because these types of costs are inherent in the concept of plant being provided.
The judgement is based on the facts of the case and relates to the actual studies and surveys carried out, but it clearly sets a precedent that pre construction studies and survey costs are likely to be regarded as too remote from the actual provision of plant and cannot therefore qualify for plant and machinery allowances.
Comment
As stated the decision was fact specific. For example, the Court also noted that HMRC had indicated that surveys and studies carried out during the final stages of fabrication or in the course of installation may qualify, but as these types of costs were not part of the appeal the Court decided not to express a view. Similarly, the Court chose not to comment on design costs partly because it believed that the word design can cover a wide range of expenditures and also because design costs were not part of the appeal. It was noted that HMRC wanted to reserve their position on “final technical drawings and specifications” which are then “made real” by the manufacturer as the question as to whether these costs could qualify was “fact-sensitive”. This suggests that HMRC are less likely to challenge these types of costs.
This will be a disappointing decision for many taxpayers and demonstrates that UK tax law is out of step with the modern business world. The government announced last year that a planned consultation in this area was to be postponed pending this decision. We would expect that government will now press on with that process, and we would expect a change of law in the future such that these types of study costs will be brought within the capital allowance code.
Companies will need to review their current and future projects to understand the impact of this decision. In this case both parties agreed that the costs in question were capital but it is not impossible that in other cases some costs may properly be regarded as incurred on revenue account. It is also possible that some of these types of costs could qualify for research and development allowances. For companies carrying on a mineral extraction trade it may be possible to claim relief for these types of study and survey costs under the mineral extraction allowance code.