On 15 April 2026, the Supreme Court handed down its unanimous judgment in Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2026] UKSC 12, reversing the Court of Appeal and siding with HMRC. The ruling narrows the scope of capital allowances under s.11(4) of the Capital Allowances Act 2001 — and its implications reach well beyond offshore wind farms.
If your business incurs significant pre-development expenditure on surveys, feasibility studies, or environmental assessments before plant and machinery is actually installed, this case demands your attention. The Supreme Court has drawn a line: not all costs incurred on the journey to acquiring plant qualify as expenditure “on the provision of” that plant. Deloitte flagged this in their May 2026 Monthly Tax Update as one of the most consequential capital allowances decisions in recent years.
What the Case Was Actually About
Orsted and its co-appellants developed offshore wind farms in UK waters. During the development phase — before turbines were manufactured or installed — they incurred substantial costs on seabed surveys, environmental impact assessments, meteorological studies, and engineering design work. They claimed capital allowances on these costs, arguing they were expenditure “on the provision of” the plant and machinery that was ultimately installed.
The First-tier Tribunal largely agreed, allowing most of the expenditure. The Upper Tribunal disagreed entirely, ruling that none of the survey and study costs qualified. The Court of Appeal then reversed the UT, restoring Orsted’s position. HMRC appealed to the Supreme Court — and won.
Why the Court of Appeal Got It Wrong (Per the Supreme Court)
The Court of Appeal had taken a broad, purposive view: if expenditure was a necessary step in the chain of events leading to plant being provided, it was expenditure “on the provision of” that plant. The Supreme Court rejected this approach as too expansive.
The five justices held that the statutory language requires a close connection between the expenditure and the plant actually provided. The preposition “on” in “expenditure on the provision of plant” is doing real work — it is not satisfied merely because costs were incurred in the course of or with a view to providing plant. The surveys and studies informed the design process but were too remote from the actual provision of the turbines, foundations, and cables that constituted the plant.
The Supreme Court did not attempt to define the precise boundary of qualifying expenditure. It stated clearly, however, that these pre-development costs fell well short of it. That deliberate ambiguity is itself a message: HMRC will test the boundary, and taxpayers should expect scrutiny on anything that is not directly and closely connected to the physical provision of plant. The HMRC Capital Allowances Manual will almost certainly be updated to reflect this narrower interpretation.
The “On the Provision of Plant” Test — What CFOs Need to Understand
The practical test emerging from the judgment is one of proximity. Ask yourself: is this expenditure directly on the thing being provided, or is it a step removed — informing, enabling, or facilitating the provision without being part of it?
Costs that are likely safe include direct manufacturing, fabrication, delivery, and installation of the plant itself, along with professional fees directly tied to procurement (e.g., commissioning engineers for specific equipment). Costs that are now at risk include feasibility studies, site surveys, environmental assessments, planning consultancy, and preliminary design work undertaken before the decision to proceed with a specific plant configuration.
This is not a wind-farm-specific problem. Any capital-intensive industry — oil and gas, data centres, manufacturing, large-scale construction — incurs similar pre-development expenditure. The ICAEW’s capital allowances resources provide useful baseline guidance, but advisers will need to update their analysis in light of this ruling.
Which Costs Are Now at Risk?
Consider the typical lifecycle of a major infrastructure project. Before ground is broken or equipment ordered, businesses routinely spend millions on:
- Geotechnical and environmental surveys — seabed, soil, ecological impact
- Meteorological and resource assessment studies — wind, solar irradiance, hydrological data
- Preliminary engineering and design — concept design, front-end engineering (FEED)
- Planning and consenting costs — including legal and consultancy fees for permits
- Grid connection studies and applications
After Orsted, all of these are vulnerable. HMRC will argue — with Supreme Court authority behind them — that such costs are too remote from the provision of plant to qualify under s.11(4). Businesses that have historically claimed capital allowances on pre-development expenditure should review their positions. Open enquiries will be affected; past claims may attract challenge.
It is worth noting that this narrowing sits alongside other recent tax litigation trends. The Court of Appeal’s decision in Burlington Loan Management [2026] EWCA Civ 461, though concerning treaty abuse and the main purpose test rather than capital allowances, reflects a broader judicial willingness to constrain taxpayer-favourable interpretations where the statutory language supports a narrower reading.
Capital Allowances in 2026: The Broader Picture
The Orsted ruling lands in a capital allowances landscape that is already shifting. CFOs need to consider this case alongside several other changes taking effect in 2026:
Writing Down Allowance (WDA) cut: From 1 April 2026, the main rate WDA drops from 18% to 14% for corporation tax purposes. For accounting periods straddling that date, a hybrid rate applies. This means the tax relief on assets that do not qualify for enhanced allowances is now significantly slower.
40% First-Year Allowance (FYA): A new 40% First-Year Allowance applies to qualifying new main rate assets from 1 January 2026. This is particularly relevant for assets that cannot access Full Expensing — for example, plant acquired for leasing. It partially offsets the WDA reduction for new investment but does nothing for the pool of existing unrelieved expenditure.
Full Expensing continues: The 100% first-year deduction for qualifying main rate plant and machinery remains available. For businesses making substantial direct investments in new plant, this is still the most powerful relief — but it does not extend to second-hand assets, leased assets, or (after Orsted) pre-development costs that fail the proximity test.
Annual Investment Allowance: The permanent £1 million AIA cap remains in place, providing a simpler route for smaller capital expenditure programmes.
The OECD has separately called for jurisdictions to review the tax treatment of pre-development costs for major infrastructure projects, recognising that overly restrictive rules may discourage investment in energy transition and critical infrastructure. The UK Supreme Court’s decision in Orsted moves in the opposite direction — tightening rather than broadening relief — and CFOs should factor this into long-term project economics.
Immediate CFO Action Points
Based on the Orsted ruling and the 2026 capital allowances changes, here is what you should be doing now:
- Audit existing claims. Review any capital allowance claims that include pre-development, survey, or study costs. If HMRC opens an enquiry, you need to know your exposure before they tell you.
- Reclassify where possible. Some costs previously bundled into “plant provision” may be better treated as revenue expenditure (deductible in the period incurred) or allocated to other qualifying categories. Work with your tax adviser to restructure the analysis.
- Restructure future projects. For new developments, consider whether procurement and contracting structures can bring design and engineering costs closer to the actual provision of plant — for instance, through turnkey EPC contracts where the supplier bears pre-development risk and the capital expenditure relates directly to delivered plant.
- Model the WDA impact. The drop from 18% to 14% means residual pools take longer to relieve. If you have material pools of unrelieved expenditure, model the cashflow impact and consider whether accelerated disposal or replacement strategies are worthwhile.
- Maximise Full Expensing and 40% FYA. Ensure all qualifying new main rate plant is claimed under Full Expensing or the 40% FYA where Full Expensing is unavailable. The difference between 100% (or 40%) year-one relief and 14% WDA is now even more significant.
- Watch for HMRC guidance updates. The Capital Allowances Manual will be revised. Monitor updates and ensure your compliance team is briefed.
The Orsted decision is a clear signal that HMRC — backed by the Supreme Court — will enforce a narrow reading of “on the provision of plant.” The days of sweeping pre-development costs into capital allowance claims are over. CFOs who act now to review, reclassify, and restructure will be better positioned than those who wait for the enquiry letter.
If you want to discuss how the Orsted ruling or the 2026 capital allowances changes affect your business, get in touch with Tanous. We help CFOs and finance teams navigate exactly this kind of complexity — practically, not theoretically.