UK Supreme Court refuses capital allowances for environmental survey and study costs on offshore windfarm projects

Why should I read this?

In a unanimous judgment released on 15 April 2026, the Supreme Court decided that expenditure incurred by members of the Orsted group (referred to collectively as “Orsted”) on environmental surveys and studies in the course of planning and designing offshore windfarms did not qualify for capital allowances.

In order to qualify for capital allowances, the expenditure needed to be “capital expenditure on the provision of plant” under section 11(4) of the Capital Allowances Act 2001.

The parties agreed that the plant in each case comprised the generation assets of the windfarm treated as a single item (rather than each individual turbine) and that the expenditure was capital (rather than revenue) in nature. The question to be determined by the Supreme Court was therefore whether the expenditure was “on” the provision of the windfarms for the purposes of section 11(4).

The Supreme Court favoured a narrow interpretation of section 11(4), deciding that the taxpayers’ expenditure on environmental surveys and studies was not sufficiently closely connected to the plant itself.

This judgment will disappoint other taxpayers in the offshore wind sector, given offshore wind projects require numerous surveys and studies to assess environmental factors, and the level of costs typically involved in such projects mean that these expenses are often very material. Given Orsted’s previous success at the Court of Appeal, this loss at the final Supreme Court stage is particularly disheartening.

What should I do?

Businesses which incur expenditure on environmental surveys and studies in connection with the planning and design of infrastructure projects should be aware of this judgment, as it will impact the capital allowances claims they make going forward.

This case leaves open the possibility that some forms of design-related expenditure in connection with infrastructure projects may be eligible for capital allowances. For example:

• HMRC reserved their position regarding whether the cost of producing final technical drawings and specifications which are then “made real” by the manufacturer could be eligible for capital allowances. (The Supreme Court expressed no view on this since this kind of design was not in issue in the appeal); and
• HMRC were prepared to accept that if further surveys and studies were carried out during the final stages of fabrication or during the course of the installation of the windfarms, they may qualify as being “on provision”, either because they are part and parcel of the production process or because they are part of installing the windfarm.

Businesses which are planning significant infrastructure projects should ensure they obtain specialist legal advice regarding the availability of capital allowances, as this is a technically complex and fact-sensitive area which may have a material impact on the economics of the project.

Such businesses should also ensure they retain detailed evidence regarding the exact nature and timing of their capital expenditure, in order to support capital allowances claims.

What else do I need to know about this judgment?

The Supreme Court’s reasoning for deciding that the expenditure on environmental studies and surveys was not “on” the provision of the windfarms included the following key points.

• Section 11(4) must be construed narrowly. The requirement that the expenditure must be “on” the provision of plant requires a close connection between the expenditure and the plant. The studies and surveys were not close to the boundary between what should be regarded as “on” plant and what is too far away from the plant itself to be so regarded, and they did not fall within the statutory wording.
• Orsted relied on Inland Revenue Commissioners v Barclay, Curle [1969] 1 WLR 675, in which a taxpayer had incurred expenditure in creating a dry dock for use in its trade of shipbuilding and ship repair. The majority of the House of Lords in that case concluded that the expenditure in dispute (the cost of excavating the earth to create a basin, and on lining that basin with concrete) was “on” the provision of plant. The Supreme Court held that Barclay, Curle did not support Orsted’s argument that all costs necessary to provide the windfarms would qualify as expenditure “on” the provision of plant, as the House of Lords in Barclay, Curle treated the lined excavated basin as integral to the plant itself.
• HMRC’s narrower construction of the phrase “on” the provision of plant was strongly supported by Ben-Odeco v Powlson (Inspector of Taxes) [1978] 1 WLR 1093, in which the majority in the House of Lords held that the financing fees and charges incurred by a taxpayer on large loans it needed to finance the construction of an oil rig did not qualify for capital allowances. The judgment emphasised the lack of proximity of the expenditure to the provision of the plant itself.
• Orsted relied on Ben-Odeco to argue that a taxpayer which pays for design work to be carried out before commissioning a bespoke piece of plant should receive equal tax treatment to a taxpayer which buys the same piece of plant off the shelf. Therefore the design costs incurred in relation to bespoke plant should receive capital allowances, given that the whole cost of an off the shelf piece of plant (which includes design costs) would be eligible for capital allowances. The Supreme Court rejected this argument, as the price set by a supplier has no bearing on whether the price is qualifying capital expenditure in the hands of the taxpayer which purchases the item.
• Section 11 CAA 2001 (and other capital allowance provisions) are needed to reflect the depreciation of capital assets used in the taxpayer’s business, including both the gradual deterioration of the asset through wear and tear and the ultimate need to replace it. However, the surveys and studies have only a tangential connection with the diminishing value of the windfarm assets.
• It is not possible to rely on the broad purpose of section 11(4) (to incentivise businesses to invest in plant and machinery) to define the precise boundary between what is caught and what is not caught by the provision.
• The Supreme Court rejected Orsted’s argument that its taxable profits should reflect the fact that a great deal of money had been spent by Orsted on the surveys and studies in order to build the windfarms which then produced the trading income on which profits are earned, and therefore capital allowances should be available on this expenditure. The way in which profits are calculated is different for accounting purposes from how they are calculated for tax purposes. Generally accepted accounting principles have never determined how taxable profits are calculated and cannot determine the construction of statutory words.

The Court of Appeal noted that the questions raised in this case may be becoming more acute as very large infrastructure projects require extensive and costly preparatory work.

Although this is a landmark capital allowances judgment, given continued investment in offshore wind and similar projects, we may see more litigation seeking to clarify further the boundary between expenditure on such infrastructure which is or is not eligible for capital allowances.

For more information

If you have any questions about this judgment, or the impact it may have on your business, please do not hesitate to get in touch with any of the Eversheds Sutherland contacts below.