The Supreme Court’s decision in Ørsted West of Duddon Sands (UK) Limited and others v HMRC marks a significant moment in the long-running debate on whether pre-development expenditure qualifies for capital allowances. On 15 April 2026, the Supreme Court overturned the Court of Appeal and concluded that substantial categories of pre-construction surveys and studies undertaken in offshore wind farms do not qualify as expenditure “on the provision of plant” under section 11(4) of the Capital Allowances Act 2001.
While the outcome has been widely viewed as disappointing for the renewables and infrastructure sectors, it provides long-awaited clarity on the statutory test and reshapes the risk profile of capital allowance claims for major projects.
The case in context
Ørsted and other group companies incurred approximately £48 million on environmental, geotechnical, geophysical, and metocean surveys when planning offshore windfarms, including West of Duddon Sands and Gunfleet Sands. These studies assessed the seabed and marine conditions, ecological constraints, and regulatory compliance, and helped in making informed decisions on layout, turbine design, and installation methodology.
All parties agreed on the following:
- the windfarm generation assets, treated as a single composite asset, constituted "plant"
- the survey and study costs were capital, rather than revenue in nature.
The sole question was whether the expenditure was incurred “on the provision of plant” for the purposes of section 11(4) CAA 2001.
What did the Supreme Court decide?
Allowing HMRC’s appeal, the Supreme Court unanimously reinstated the Upper Tribunal’s strict interpretation of the statutory wording. It held that the word “on” requires a close and direct connection between the expenditure and the plant itself, rejecting the broader approach adopted by the Court of Appeal.
The Court distinguished section 11(4) from other legislative provisions using wider formulations such as “in connection with” or “relating to”, concluding that parliament deliberately chose more restrictive wording. Although capital allowances are not limited solely to the purchase price of plant, only expenditure inherently forming part of the provision of the plant, such as transport and installation, can qualify.
The surveys and studies were found to be too remote. While they informed design and installation decisions, they did not themselves form part of the process of providing the plant. At most, they put the taxpayer in a position to incur a qualifying expenditure, but it was not a qualifying expenditure in its own right.
Retrospective effect
As a matter of UK constitutional and tax law, Supreme Court judgments are generally treated as declaratory, meaning they are regarded as confirming what the law has always been rather than creating new law.
As a result, the interpretation adopted in Ørsted West of Duddon Sands applies retrospectively to all open matters, including:
- ongoing HMRC enquiries, live tribunal or court proceedings,
- appeals that were stayed pending the outcome of the case,
- unsettled or protective capital allowance claims relating to historic expenditure.
HMRC and the tribunals must now apply the Supreme Court’s interpretation to all cases that remain procedurally open, even where the relevant expenditure was incurred many years before the judgment was handed down. By contrast, closed litigation, time-barred claims, and cases that have been conclusively settled remain unaffected, as principles of procedural finality continue to apply. The Supreme Court did not indicate that its judgment should operate only prospectively, a step which UK courts take only in exceptional circumstances.
For capital allowances claims, this retrospective effect is particularly significant. Many large infrastructure projects involve long development timelines and historic pre-construction expenditure, and a number of claims were awaiting resolution of the Ørsted litigation.
Capital allowances implications
The decision materially narrows the scope for including pre-construction studies and professional fees within project claims. The judgment reinforces that:
- necessity or inevitability is not determinative, expenditure can be essential to project delivery and still fail to qualify
- a functional or economic link is insufficient without a direct connection to the provision of the plant
- claims relating to design informing, exploratory, environmental or regulatory studies are more vulnerable to challenge.
The Supreme Court deliberately declined to draw a bright line boundary, acknowledging that some design-related costs incurred closer to fabrication or installation may still qualify, but emphasised that such questions are highly fact sensitive and were not before it in this case.
Government policy and consultation
The judgment is particularly significant given the government’s previously announced intention to consult on the tax treatment of pre-development costs, as set out in the 2024 Corporate Tax Roadmap. However, the consultation was postponed pending resolution of the Ørsted litigation, with HM Treasury explicitly acknowledging business concerns following the earlier Gunfleet Sands decisions.
The decision now removes judicial uncertainty, but a clear policy tension remains between encouraging investment in renewable energy and major infrastructure, and the restrictive interpretation of section 11(4), which limits reliefs on expenditure that inevitably incur at the earliest stages.
Procedural impact
Beyond its substantive tax consequences, the decision has an important procedural impact on how capital projects will need to evidence expenditure going forward.
The Supreme Court’s reasoning places renewed emphasis on when and why costs are incurred, not just on what they relate to. For capital allowances purposes, the timing of expenditure is incurred, and whether it can be demonstrably embedded within the physical and contractual chain of plant provision becomes critical. This sharpens the distinction between:
- exploratory or enabling studies undertaken to determine whether a project proceeds at all
- technical work undertaken as part of an irrevocable process of fabrication, installation, or commissioning.
In practice, this suggests that future claims may depend less on retrospective cost reallocation and more on project governance, contracting strategy and documentation at the design stage. Where professional and technical services are procured after final investment decisions, tied to specific plant components and embedded within fabrication or installation contracts, the risk profile may be materially different. Seen in this light, Ørsted signals a shift towards evidential discipline as a defining feature of capital allowance claims.
Conclusion
The Supreme Court’s decision in Ørsted West of Duddon Sands brings clarity to a long-running dispute, but at the cost of a significantly narrower interpretation of qualifying expenditure for capital allowances. While disappointing for infrastructure and renewables developers, the judgment is tightly grounded in statutory wording and established authority.
If early-stage development costs are structurally excluded under existing law, any meaningful support for capital-intensive investment is now likely to require legislative intervention.
With the postponed consultation now back in focus, Ørsted may ultimately prove to be less an endpoint and more a catalyst for reform. In the meantime, the decision signals a shift towards evidential discipline, contractual timing, and project structuring, which will increasingly determine where the boundary of capital allowances relief is drawn.
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