Court of Appeal determines capital allowances claims on infrastructure assets

Timothy Brennan QC and Aparna Nathan QC represented HMRC in the Court of Appeal in a capital allowances case concerning expenditure on large works of civil engineering for a Scottish hydro-electric power station (HMRC V SSE Generation Ltd [2021] EWCA Civ 105). The court held that SSE was entitled to allowances in relation to all the disputed assets except one category of asset, namely the “cut and cover” conduits. These were the subject of a procedural challenge by HMRC.

On the substantive issues, the Court held that s 22(1)(a) (List B, disallowed assets) and s 22(1)(b) (alteration of land) CAA 2001 were mutually exclusive. Since the assets were not disqualified by s 22(1)(a), the court held that they could not be disqualified by s 22(1)(b). The disputed assets were neither “tunnels” nor “aqueducts” falling within s 22 List B Item 1. In the context of the legislation, a “tunnel” meant, and meant only, a passage for vehicles or pedestrians and an “aqueduct” had to look like a bridge and carry a canal.

On the procedural issue, the Court held that since SSE had failed to seek or obtain permission to appeal the First-tier Tribunal’s decision in relation to “cut and cover” conduits the Upper Tribunal had no power to interfere with the lower tribunal’s decision. The court’s decision has wide significance for all tax appeals where the respondent to an appeal may wish to overturn aspects of a decision on which it is unsuccessful. The position in tribunals governed by the Tribunals, Courts and Enforcement Act 2007 differs from that applying to courts governed by the Civil Procedure Rules.

The court’s judgment may be found here.

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