Orsted v HMRC: Supreme Court rules survey costs fall outside capital allowances for offshore windfarms

The Supreme Court has allowed HMRC's appeal in Orsted West of Duddon Sands (UK) Limited and others v Commissioners for His Majesty's Revenue and Customs [2026] UKSC 12, holding that expenditure on environmental surveys and feasibility studies incurred during the planning and design of offshore windfarms does not qualify as capital expenditure "on the provision of plant" within section 11(4) of the Capital Allowances Act 2001.

The respondents — four companies within the Orsted group — owned and operated offshore windfarms off the coasts of Essex and Cumbria. During the planning phase, they commissioned a wide range of surveys as part of the environmental impact assessment process: studies covering benthos, ornithology, marine mammals, geophysics, geotechnics, metocean conditions, noise, radar interference, and socio-economic impact, among others. The aggregate disputed expenditure across the four entities totalled approximately £48 million. Orsted contended that these costs, being capital in nature and directed at enabling the design and construction of the generation assets, qualified for writing-down allowances.

Lady Rose, delivering the unanimous judgement of the Court (Lord Lloyd-Jones, Lord Hamblen, Lord Burrows and Lord Richards agreeing), traced the interpretive path through the leading authorities. In IRC v Barclay, Curle & Co Ltd [1969] 1 WLR 675, the House of Lords had held that the excavation and concrete lining of a dry dock qualified as expenditure on the provision of plant because the basin was integral to the dry dock viewed as a unified whole — the plant could not exist without it. In Ben-Odeco Ltd v Powlson [1978] 1 WLR 1093, the House of Lords had refused to extend the phrase to cover loan commitment fees and capitalised interest incurred to finance the acquisition of an oil rig, emphasising that the relevant question was what the expenditure actually produced and whether it was sufficiently proximate to the plant itself.

Lady Rose agreed with the Upper Tribunal that the statutory word "on" requires a close connection between the expenditure and the plant provided — markedly narrower than formulations such as "in connection with" or "relating to" which Parliament has deployed elsewhere. The Court rejected the Court of Appeal's more expansive approach, under which expenditure qualified if it objectively informed the design or installation of plant that was ultimately acquired. That test, Lady Rose observed, would extend the allowance to surveys demonstrating the absence of hazards just as readily as those prompting a design change — a breadth inconsistent with the language and the weight of authority.

The judgement draws a practical distinction: the purchase price of plant, whether bought off the shelf or commissioned as bespoke, plainly qualifies, as does the cost of transporting and installing it. These costs are inherent in the act of provision. Surveys and studies which advise a business on how to choose, design or configure plant are, by contrast, too remote. They produce information or advice; they do not produce the plant. The fact that a manufacturer's sale price will itself have absorbed research and design expenditure was held irrelevant: the statutory question is assessed from the perspective of the purchasing taxpayer, not reconstructed by reference to the supplier's cost stack.

The Court also declined to place significant weight on the general purpose of incentivising capital investment, noting that Parliament has targeted such incentives through specific provisions — enhanced first-year allowances, renewable energy subsidies — rather than through a broad reading of the general qualifying expenditure rule. The concept of the writing-down allowance, reflecting progressive depreciation of the physical asset, was a further pointer against treating pre-construction advisory costs as within scope.

The appeal is allowed. None of the disputed survey and study expenditure qualifies for plant and machinery allowances under section 11(4) of the Capital Allowances Act 2001.