HMRC v SSE Generation Ltd

Under section 22 of the Capital Allowances Act 2001, expenditure on a structure or other asset is governed by section 22(1)(a), while section 22(1)(b) concerns works altering land which do not amount to structures. The limbs are mutually exclusive.

In List B Item 1, a “tunnel” is a passage bored through the ground for travel by people or vehicles. An “aqueduct” is a bridge or viaduct-like structure carrying a canal. The statutory context and grouping of associated words may select or restrict an ordinary meaning.

A tribunal respondent seeking to reverse, rather than merely defend, an adverse part of a First-tier Tribunal decision requires permission to appeal. A respondent’s notice under rule 24 cannot replace that statutory permission.

SSE Generation Ltd constructed a hydroelectric scheme comprising water conduits, a headrace and a tailrace. HMRC disputed the availability of plant and machinery allowances for expenditure on those components under Part 2 of the Capital Allowances Act 2001.

The First-tier Tribunal, in [2018] UKFTT 416 (TC), allowed some of the expenditure. The Upper Tribunal, in [2019] UKUT 332 (TCC), remade the decision largely in SSE’s favour. HMRC appealed.

The principal issues were the relationship between section 22(1)(a) and section 22(1)(b); the meanings of “tunnel” and “aqueduct” in List B Item 1; the classification of the disputed components; and whether SSE could obtain a more favourable result concerning the cut-and-cover conduits without permission to appeal.

1. Appeal allowed in part. HMRC’s appeal failed on the substantive capital-allowance issues. It succeeded only concerning the Upper Tribunal’s decision to allow all expenditure on the cut-and-cover conduits.

2. Sections 22(1)(a) and 22(1)(b) of the Capital Allowances Act 2001 are mutually exclusive. Section 22(1)(a) governs structures and other assets. Section 22(1)(b) concerns works altering land where the result does not amount to a structure or other asset. Otherwise, section 22(1)(b) would substantially defeat the express carve-outs in List B Item 7. Accordingly, a structure which is not excluded by section 22(1)(a) is not reconsidered under section 22(1)(b).

3. The expressions in List B must be construed in their statutory setting. The listed assets are grouped by themes, and words with elastic meanings may take their colour from surrounding words. In Item 1, “tunnel” means a passage bored through the ground which is intended to permit travel by people or vehicles. It does not encompass every subterranean passage. “Aqueduct” is restricted by the transportation theme to a bridge or viaduct-like structure carrying a canal.

4. The drill-and-blast conduits, cut-and-cover conduits, open channels, headrace and tailrace were neither tunnels nor aqueducts. They were structures and qualified as industrial buildings. They therefore escaped List B, and section 22(1)(b) did not apply. Subject to the procedural issue concerning the cut-and-cover conduits, the expenditure was allowable.

5. The classification issue arose from errors of statutory construction and was therefore one of law which the Upper Tribunal could correct. Once the legal meaning of an ordinary statutory expression has been established, applying it within a permissible evaluative range may instead be a question of fact.

6. Section 11 of the Tribunals, Courts and Enforcement Act 2007 requires permission where a respondent seeks to reverse a point decided against it by the First-tier Tribunal. Rule 24 of the Upper Tribunal Rules permits unsuccessful arguments supporting the same result, but cannot confer a better outcome without permission. SSE had not obtained permission to challenge the partial disallowance of expenditure on fabricating the cut-and-cover conduits. The Upper Tribunal therefore lacked a proper basis for allowing that expenditure in full.

1. Court of Appeal (Civil Division): In [2021] EWCA Civ 105, allowed HMRC’s appeal only in relation to the full allowance granted for the cut-and-cover conduits and otherwise dismissed it.
2. Upper Tribunal (Tax and Chancery Chamber): In [2019] UKUT 332 (TCC), disagreed with parts of the First-tier Tribunal’s analysis and remade the decision largely in SSE’s favour.
3. First-tier Tribunal (Tax Chamber): In [2018] UKFTT 416 (TC), allowed SSE’s appeal concerning some disputed items but upheld HMRC’s treatment of others.