R & C Commissioners v SSE Generation Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 November 2019 |
| Neutral Citation | [2019] UKUT 332 (TCC) |
| Date | 04 November 2019 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2019] UKUT 332 (TCC)
Judge Timothy Herrington, Judge Guy Brannan
Upper Tribunal (Tax and Chancery Chamber)
Corporation tax – Capital allowances – Whether expenditure on certain structures eligible for plant and machinery capital allowances – Capital Allowances Act 2001 (CAA 2001), s. 21–23 – Yes – Appeal dismissed.
The Upper Tribunal (“UT”) held that expenditure incurred on certain structures in a hydroelectric power plant qualified for plant and machinery capital allowances, upholding the decision of the First-Tier Tribunal (“FTT”), although correcting it on certain points of law.
HMRC appealed against a decision by the FTT in SSE Generation Ltd [2018] TC 06618 that expenditure incurred by the respondents on the provision of certain long-life infrastructure assets at the Glendoe Hydro-Electric Power Scheme was qualifying expenditure on the provision of plant and machinery. The assets in dispute were: (a) three types of water conduits (drilled and blasted underground conduits lined with “shotcrete”, cut-and-cover reinforced concrete conduits built on site, and uncovered rock- and concrete-lined channels); (b) the headrace (the conduit carrying the water downward under increasing pressure from the main intake to the generating equipment; and (c) the tailrace (a conduit carrying the spent water to empty into Loch Ness).
The questions of law that fell to be decided were:
- Were CAA 2001, s. 22(1)(a) (which excludes expenditure on the provision of assets in List B fr m qualifying for allowances) and CAA 2001, s. 22(1)(b) (which excludes works involving the alteration of land) mutually exclusive?
- The meaning of the words tunnel and aqueduct within Item 1 of List B in CAA 2001, s. 22(1). Item 1 excluded expenditure on the provision of a tunnel, bridge, viaduct, aqueduct, embankment or cutting
- The meaning of the word installing in Item 22 of List C in CAA 2001, s. 23(4) (items in List C are excepted from the exclusions in CAA 2001, s. 22; Item 22 refers to the alteration of land for the purpose only of installing plant or machinery)
- Is an asset plant for the purpose of Item 22 of List C if it is explicitly excluded from allowances by its presence in List B?
The UT affirmed the decision of the FTT that these two provisions were mutually exclusive, i.e. that if expenditure on the provision of an asset is not disqualified by its inclusion in List B (as modified by List C) then it cannot be disqualified under CAA 2001, s. 22(1)(b) as works involving the alteration of land. The latter exclusion was aimed at works where the alteration of land was the objective in its own right. In coming to this finding, the UT noted with approval that the FTT in Cheshire Cavity Storage 1 Ltd [2019] TC 07301 had come to the same conclusion.
The words “tunnel” and “aqueduct” had to have their ordinary meaning. Although the FTT had been wrong in law in saying that the ordinary meaning of “tunnel” was always a passageway used to facilitate the movement from one end to the other of persons or means of transport, it took on that narrower meaning in the context of Item 1 in List B.
As regards “aqueduct”, the FTT had correctly identified two distinct, ordinary meanings. However, in the context of Item 1 in List B, its correct meaning, pace the FTT's conclusion, was a bridge-like structure creating a transportation route (i.e. a canal).
Although it was no longer necessary for the purpose of its decision, the UT ruled on a review of the authorities that installation connoted setting something in place rather than the creation of an item in situ. The FTT had therefore erred in law in holding that the alteration of land involved in the creation of an asset or structure had been carried out for the purpose only of installing the asset or structure and was therefore expenditure excepted from exclusion by Item 22 of List C.
A conclusion on this point was also unnecessary for the purposes of the UT's decision, but it nevertheless held that whether an item was “plant” had to be determined by reference to case law. CAA 2001, s. 22 did not provide that an item in List B was not “plant”. On the contrary, it provided that expenditure on the provision of certain items of “plant” was excluded from qualifying for capital allowances.
On the basis of the foregoing:
None of the three types of conduit was a tunnel or aqueduct within Item 1 of List B. They were structures qualifying as “industrial buildings” within Item 7(a) of List B, therefore excepted from the exclusion by Item 7 of structures not listed elsewhere in List B. Nor, on the mutual exclusivity principle, was CAA 2001, s. 22(1)(b) relevant. Accordingly, expenditure on their provision was allowable in full.
By the same token, neither the headrace nor the tailrace was a tunnel or aqueduct, but an industrial building within Item 7(a) of List B. Accordingly, expenditure on their provision was allowable in full.
The appeal therefore fell to be dismissed.
The Upper Tribunal has given a generous interpretation of Item 1 in List B, by restricting the definition of “tunnel” and “aqueduct” for the purposes of List B. It has also lent second-instance weight to the view that if expenditure on an asset is not excluded by List B under CAA 2001, s. 22(1)(a), it cannot be excluded under CAA 2001, s. 22(1)(b) as being works involving the alteration of land, that exclusion being limited to expenditure with that precise purpose in mind. If HMRC does appeal against the decision in Cheshire Cavity, it will be interesting to see what the UT in that appeal will conclude on the same question.
Timothy Brennan QC and Aparna Nathan QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Jonathan Peacock QC and Michael Ripley, Counsel, appeared for the respondent
[1] The appellants (“HMRC”) appeal against a decision by the First-tier Tribunal (“FTT”) (Judge Kevin Poole) released on 31 July 2018 (the “Decision”). The FTT allowed in part the appeal of SSE Generation Limited (“SSEG”) against the conclusions in various closure notices for the years ending 31 March 2006 to 31 March 2012 to the effect that SSEG's taxable profits for those years had been understated as a result of claims for capital allowances in respect of fixed asset expenditure in relation to the Glendoe Hydro Electric Power Scheme (the “Scheme”). Capital allowances had been claimed on some £260 million of expenditure on the Scheme, only some £34 million of which was originally accepted by HMRC. Approximately £200 million of expenditure remains in dispute following the Decision.
[2] The Decision concerned the tax treatment of a number of assets constructed by SSEG for the purposes of the Scheme. The assets concerned were a group of long-life infrastructure assets. SSEG contends that the relevant assets are “plant” and that the relevant expenditure was expenditure “on the provision of plant” for the purposes of Part 2 of the Capital Allowances Act 2001 (“CAA 2001”). The dispute was in relation not to the generator turbine (which was accepted was eligible for allowances) but to works of civil engineering which enabled water to be taken into and from a dammed area and channelled under high pressure to the turbine to generate electricity and for the used water to be discharged into Loch Ness.
[3] The FTT decided that in principle the expenditure incurred on a considerable number of the items was allowable as expenditure incurred on the provision of plant or machinery but that the expenditure on a number of the items claimed was not so allowable. HMRC have not appealed against a number of the findings made against them but pursue an appeal with the permission of the FTT against the findings in respect of the most substantial items. In their Respondent's Notice SSEG seek to challenge the FTT's findings in respect of certain expenditure on a particular structure which the FTT found not to be allowable in part.
[4] The FTT made detailed findings of fact at [7] to [18] as to the background, construction and operation of the Scheme, based on the witness evidence of Mr Jim Smith, Managing Director of SSEG, the documentary materials before it and a site visit. So far as is relevant to this appeal, we summarise those findings as follows.
[5] At [11] the FTT described the various elements of the Scheme, starting from the highest point of the Scheme and working down. Shorn of the detail which is not required for the purposes of this appeal the essential elements by reference to the numbered sub-paragraphs of [11] of the Decision are:
- Water intakes. The Scheme uses water, collected over two discrete natural catchment areas totalling some 75 square kilometres. A network of main water intakes and minor water intakes from various different streams feeds part of that water into a network of conduits of various types which form the next part of the Scheme.
- Conduits. Once diverted from the natural streams, the water is channelled through a network of just under 12 km of conduits into a main reservoir. More detail about the different types of conduit was given at [15] of the decision, as set out at [8] below.
- Reservoir and dam. The conduits run into a main reservoir which is formed behind a concrete-faced rock-filled dam sited at the head of a gorge down which the river Tarff runs. The capacity of the reservoir is 12.7 million cubic metres. No claim has been made for plant or machinery allowances in relation to the dam and reservoir.
- Main intake. Beside the dam there is an intake through which water is allowed to pass into the headrace, the next element of the Scheme. The intake can be closed in order to cut off the flow of water into the headrace...
To continue reading
Request your trial
-
Urenco Chemplants Ltd and Another v R & C Commissioners
...the SSE case [2021] EWCA Civ 105, [2021] STC 369, at [19], and the decision of the UT (Judges Herrington and Brannan) in that case, [2019] UKUT 332 (TCC), [2020] STC 107, at 101 The UT in SSE referred to Ministerial statements made by Mr Stephen Dorrell MP, as Financial Secretary to the ......
-
Watts
...(Balhaj) Andrew [2019] TC 07027 (Andrew) Ingenious Games LLP v R & C Commrs [2019] BTC 521 (Ingenious) R & C Commrs v SSE Generation Ltd [2019] BTC 528 (SSE Generation) Ecko Ltd (t/a Subway) [2019] TC 07487 (Ecko) Good & Anor [2020] TC 07531 (Good) Uber BV v Aslam [2021] ICR 657 (Uber) Pitt......
-
R & C Commissioners v Inverclyde Property Renovation LLP and Another
...any significant weight to the extra-statutory materials produced by HMRC. We accept, under reference to R & C Commrs v SSE Generation Ltd [2019] BTC 528 at paras. 63–65 and the authorities cited there, that these materials are admissible to place legislative provisions into context, notwith......
-
The Commissioners for HM Revenue and Customs v SSE Generation Ltd
...[2019] UKUT 0332 (TCC) Appeal number:UT/2018/0143 CORPORATION TAX – capital allowances - eligibility of various structures of a hydroelectric power generation scheme for capital allowances - ss 11 and 21 to 23 Capital Allowances Act 2001 UPPER TRIBUNAL TAX AND CHANCERY CHAMBER THE COMMISSI......