On 15 April 2026, the Supreme Court handed down its decision in the case of Orsted (also referred to as Gunfleet Sands), finding for HMRC that expenditure incurred on surveys and studies related to the construction of a windfarm did not attract capital allowances.   

Background 

The case concerns a group of companies, headed by the Danish company Orsted A/S, who own and operate windfarms off the coast of England. While building the windfarms, the companies incurred expenditure on surveys and studies. The companies and HMRC disagreed on the tax treatment of that expenditure.  

The question for the Supreme Court to decide was whether the expenditure qualified for tax relief through the capital allowances system as “capital expenditure [incurred] on the provision of plant or machinery” (s11(4), Capital Allowances Act 2001). Although HMRC accepted that the expenditure was capital in nature, and that the windfarms were plant and machinery, it did not accept that the expenditure on the surveys and studies was incurred “on the provision of” that plant and machinery.  

The issue divided not just the companies and HMRC, but also the lower courts, with (broadly) the First-tier Tribunal and the Court of Appeal finding in favour of the companies and the Upper Tribunal for HMRC.

Narrow test applies 

The Supreme Court has found for HMRC, ruling that the expenditure on the surveys and studies did not qualify for capital allowances.  

For the Supreme Court, “the requirement that the expenditure must be “on” the provision of plant indicates a narrow test, requiring a close connection between the expenditure and the plant provided”. Applying this “narrow test”, the Supreme Court found that the expenditure was “too far away from the plant itself” to be regarded as having been incurred on the provision of the plant and machinery.  

Implications for businesses 

The decision will be particularly disappointing for businesses that have already undertaken or are planning to undertake large infrastructure projects. Depending on the circumstances, businesses may need to reconsider capital allowances claims made earlier or revise financial plans made on the basis that capital allowances would be available.   

In September 2024, ICAEW called for a review of capital allowances, arguing that “simplification and long-term certainty are key to maximising the investment incentive these allowances provide”. Referencing the case of Orsted, ICAEW called for consideration to be given “to ensuring that tax relief is available for expenditure that does not qualify for either a revenue deduction or a claim for capital allowances”.  

In its corporation tax roadmap, published in October 2024, the government made a commitment to explore the tax treatment of predevelopment costs through a “consultation to be launched in the coming months”. However, in April 2025, the government announced that the consultation would be postponed following the decision of the Court of Appeal in Orsted. ICAEW hopes that the consultation can now go ahead.