Gunfleet Sands Limited & Ors v The Commissioners for HMRC

Whether components constitute a single item of plant is a question of fact and degree. Function and purpose are relevant, but neither a single-purpose test nor a distinct-operational-function test is conclusive. Under section 11(4)(a) of the Capital Allowances Act 2001, expenditure must be on the plant itself, its construction, transport, installation or expenditure of a similar nature. Expenditure on design, data gathering, preparatory surveys and advice about installation is not expenditure on the provision of plant merely because the plant could not be made or installed without it. Such expenditure may nevertheless be capital for revenue deduction purposes. In a closure-notice appeal, the tribunal’s jurisdiction is defined by the conclusions and subject matter of the notice, construed in context, rather than by an erroneous consequential amendment alone.

The taxpayers operated offshore windfarms and claimed capital allowances for expenditure incurred on environmental studies, metocean studies, geophysical and geotechnical surveys, technical studies and project management. The FTT held that the turbines and array cables could together constitute a single item of plant and allowed some categories of study expenditure.

HMRC appealed on the single/multiple plant issue and on qualifying expenditure. The taxpayers appealed on expenditure rejected by the FTT, the alternative revenue deduction claim and issues concerning closure notices, tribunal jurisdiction and conclusive determination under Schedule 18 to the Finance Act 1998.

1. Single or multiple plant. HMRC’s appeal on this issue was dismissed. Whether components form one item of plant is a question of fact and degree. The tribunal must consider the facts and circumstances, including the nature and function of the components. The expressions “distinct operational function” and “directed towards a single purpose” are useful but non-exhaustive descriptions. The FTT was entitled to find that the turbines and array cables forming the generation assets were a single item of plant.
2. Qualifying expenditure. HMRC’s appeal was allowed and the FTT’s decision was set aside and remade. Section 11(4)(a) of the Capital Allowances Act 2001 covers expenditure on the plant itself and may include construction, transport and actual installation. The question is what the expenditure achieves: expenditure on something other than the plant does not qualify merely because it is necessary before the plant can be provided.
3. Design expenditure and expenditure gathering data to inform design are not expenditure on the provision of plant. Surveys and studies advising where, how or when to install plant are not the actual installation. None of the disputed environmental and technical studies therefore qualified. Unchallenged findings concerning certain project-management preliminaries remained in place, but produced no practical allowance where the underlying studies did not qualify.
4. The taxpayers’ alternative revenue deduction appeal was dismissed. Expenditure may be capital in nature without satisfying the separate statutory test for expenditure on the provision of plant or machinery.
5. On the closure-notice issues, the FTT had jurisdiction under sections 49G and 50 of the Taxes Management Act 1970 to adjust consequential amounts of qualifying expenditure. The scope of the appeal was determined by the closure notices’ conclusions, read in their factual context. Paragraph 88 of Schedule 18 to the Finance Act 1998 did not conclusively determine the amounts while the appeals remained pending.

• Upper Tribunal (Tax and Chancery Chamber) [2023] UKUT 260 (TCC): HMRC’s Issue 1 appeal dismissed; HMRC’s Issue 2 appeal allowed; taxpayers’ appeals dismissed on Issues 2, 4, 5 and 6; decision remade in part.
• First-tier Tribunal (Tax Chamber) [2022] UKFTT 35 (TC): allowed the generation assets to be treated as a single item of plant and allowed some study expenditure.