Upper Tribunal case: When is a structure not a structure?

Upper Tribunal case

The Upper Tribunal decision in SSE Generation Limited v HMRC considers the definition of a structure for capital allowances purposes.

Harinder Soor

Partner – Claims and Incentives

KPMG in the UK


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SSE Generation Limited (SSE) spent £300 million on a hydroelectric power generation scheme and claimed capital allowances totaling £260 million. HMRC disputed a total of £227 million, and the case went to the First-tier Tribunal (FTT). Agreeing with SSE, the FTT held that the majority of the disputed items were eligible for capital allowances. In this Upper Tribunal (UT) case, HMRC challenged the eligibility of a number of items, including water conduits between the water intakes and the main reservoir (used for gathering water into the reservoir), the headrace (carrying water to the turbine) and the tailrace (carrying water away from the turbine into Loch Ness) on the basis that the reliance on Item 22 in List C was incorrect. SSE in turn counter appealed that the FTT had erred in finding that a number of assets were aqueducts, and that Item 25 of List C (pipelines) should have applied. The FTT decision has been upheld albeit with a different technical analysis and a useful reminder that when construing statutory language words will normally take their standard English meaning.

As the UT stated “This case turns entirely upon questions of statutory interpretation and in particular the interpretation of a number of words used in CAA2001 which are ordinary words of the English language.”

The FTT, in its original decision, had taken the position that the words should be given their ordinary meanings, a principle endorsed by the UT, although they disagree with the FTT on the specific meanings of a number of words. The specific terms considered were:

  • ‘Tunnel’ in Item 1 of List B (s.22 CAA2001). The UT disagreed that this always held the meaning of “a passageway used to facilitate access from one end to the other of persons or other means of transport”, although in the context of List B and the other surrounding items, they agreed that this was the correct interpretation;
  • ‘Aqueduct’ in Item 1 of List B. The UT felt that in context, this should be confined to “a bridge-like structure which created a transportation route”, meaning the assets in question here would not fall to be aqueducts;
  • ‘Installation’ in Item 22 of List C (s.23 CAA2001). The UT concluded that this required a pre-existing asset to be set in place, rather than created in situ as part of the alteration of land; and
  • ‘Pipeline’ in Item 25 of List C. Here the UT agreed with the FTT that the conduits at question were not pipelines, being too far removed from the normal English meaning of joined lengths of pre-formed pipes.

The UT also considered HMRC’s argument that s.22(1)(a) and (b) are not mutually exclusive. S.22(1) states that expenditure is not on the provision of plant and machinery if it is on:

(a) the provision of a structure or asset in List B; or
(b) any works involving the alteration of land.

The effect of HMRC’s argument would be that something can be excluded under s.22(1)(b) even if it falls within List B or a specified exception within Item 7 of List B (as was the case here). The UT rejected this argument, as it would effectively sweep in all structures and render the List B exceptions useless.

The result of the UT’s determinations here is that all the assets fall under Item 7(a) of List B and are not considered ‘structures’ for capital allowances purposes. It is therefore unnecessary to look to List C, but rather whether the asset would be plant at common law. Accordingly, the FTT decision was upheld albeit with a different technical analysis.

Although the facts of the case are highly specific, it is a reminder that when construing statutory language, words will normally take their standard English meaning, as impacted by the context in which the term is used.

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