The FTT has released a decision that dealt with the eligibility for capital allowances on the construction of a hydroelectric power generation scheme.
The First-tier Tribunal (FTT) has released its decision in the case of SSE Generation Limited (SSE) v HMRC. The case deals with capital allowances on the construction of a £300 million hydroelectric power generation scheme. In summary, HMRC had accepted £34 million as qualifying for capital allowances out of a total claim made by SSE of £260 million. Accordingly some £227 million of capital expenditure was in dispute. The FTT has partially allowed SSE’s appeal and the Tribunal Judge, Kevin Poole, took great care to go through the distinct components of the hydroelectric power plant to explain the construction and engineering, and how it functions in SSE’s qualifying activity. Given the amounts at stake, it was right that the FTT took this amount of care in explaining the basis of its decision.
Some key themes that came out of the case include:
The case provides some much needed re-affirmation on the correct operation of s11 and s21–23 CAA2001 and how the case law tests, built up over many years, define what is plant - much needed because there is no doubt we have seen, in the last few years, a hardening of approach from HMRC to what qualifies for tax relief on capital expenditure.
The FTT largely took a pragmatic and sensible approach to what qualifies for tax relief and dealt with, in a pretty emphatic way, HMRC’s attempts to take the debate away from the context the draftsman had intended.
The specifics of the case are particular to the facility constructed by SSE and quite unique, but they do give us guidance on very important aspects that have wider application:
The difference between HMRC’s and SSE’s position was such that it was always likely that the FTT would be asked to adjudicate. It will be interesting to see if HMRC appeal the decision, which was largely for the taxpayer.
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