In an important ruling, the Supreme Court has found that expenditure on "tunnels" and "aqueducts" can qualify for capital allowances and is not necessarily excluded by section 22 of the Capital Allowances Act 2001.
The Glendoe hydro-electric power plant was constructed by SSE Generation Ltd between 2006 and 2012, and SSE sought to claim tax relief, through the capital allowances system, for around £200m of expenditure on various conduits for the passage of water around the turbine. Uniquely, many of the assets of the Glendoe scheme are located underground in order to minimise environmental impacts.
HMRC agreed that the expenditure in question amounted to "plant", but asserted that the conduits fell within a list of items which are specifically excluded from qualifying for plant & machinery allowances; the exclusion at section 22 List B item 1 reads "A tunnel, bridge, viaduct, aqueduct, embankment or cutting". SSE had appealed HMRC's initial decision to deny capital allowances, and had been successful in the FTT, Upper Tribunal and Court of Appeal.
HMRC argued that the Court of Appeal had incorrectly inferred that Parliament had intended to narrow the ordinary wide meaning of the words "tunnel" and "aqueduct", but the Supreme Court ruled that it was correct to determine the meaning of these words by reference to the context in which they are set; the items in List B are grouped thematically, and the meaning of "tunnel", in this case, is a subterranean passage through an obstacle for a way (such as a railway, road, or canal) to pass through. The meaning of an "aqueduct" is a bridge-like structure for carrying water, which includes but is not limited to carrying a canal.
The Supreme Court dismissed HMRC's appeal, finding that the disputed items were not a "tunnel" nor an "aqueduct" within the meaning of section 22 List B. Consequently, the £200m of expenditure on the Glendoe scheme qualifies for capital allowances.
Read the full judgement here.