Revenue and Customs Commissioners v SSE Generation Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 01 February 2021 |
| Neutral Citation | [2021] EWCA Civ 105 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 105
Lord Justice David Richards, Lady Justice Rose and Lord Justice Popplewell
Court of Appeal (Civil Division)
Corporation tax – Capital allowances – Whether expenditure on certain structures eligible for plant and machinery capital allowances – CAA 2001, s. 21 – Yes – Appeal dismissed.
The Court of Appeal upheld the decision of the Upper Tribunal (UT) that expenditure on certain structures in a hydroelectric power plant qualified for plant and machinery capital allowances, save for a procedural point which it decided in favour of HMRC.
This is an appeal lodged by HMRC against the decision of the UT in R & C Commrs v SSE Generation Ltd [2019] BTC 528. The UT had considered the decision of the First-tier Tribunal (FTT) (in SSE Generation Ltd [2018] TC 06618) that some of the expenditure incurred by SSE Generation Ltd (SSE) on the provision of certain long-life infrastructure assets in a hydroelectric power plant was qualifying expenditure on the provision of plant and machinery for capital allowances purposes. The UT had disagreed with the FTT's analysis in some respects, remaking the decision largely in SSE's favour.
It fell to the Court of Appeal to determine the issues set out below.
Issue 1: Whether CAA 2001, s. 22(1)(a) and s. 22(1)(b) are mutually exclusive. The Court of Appeal held that the UT was correct in finding that, where the expenditure is on the provision of a structure or an asset, and so falls within s. 22(1)(a), it is not necessary to consider s. 22(1)(b) (works involving the alteration of land).
Issue 2: Whether some of the disputed expenditure fell within the term “tunnel” in item 1 of List B at s. 22(1)(a). Both the FTT and the UT favoured a definition of “tunnel” that was narrower than its dictionary definition; for the FTT, the ordinary meaning of the word (“a passage bored through ground which permits people or forms of transport to pass to and fro”) applied and for the UT, the meaning of the word was affected by the words immediately surrounding it, all of which related to the construction of transportation ways and routes. In other words, the FTT and the UT reached the same conclusion but for different reasons. The Court of Appeal upheld the decision of the UT, preferring the route taken by the FTT.
Issue 3: Whether some of the disputed expenditure fell within the term “aqueduct” in item 1 of List B at s. 22(1)(a). The UT had overturned the decision of the FTT on this issue, finding that, although the term had two potential ordinary meanings, the transport theme of item 1 meant that, in this context, the meaning of the term was confined to a “bridge-like structure which created a transportation route, that is a canal”. The Court of Appeal upheld the decision of the UT.
Issue 4: In light of the above, whether the disputed expenditure fell within the meaning of “tunnel” or “aqueduct”. The Court of Appeal upheld the decision of the UT that the disputed items were neither tunnels nor aqueducts in the context of CAA 2001, s. 22(1)(a).
Issue 5: Whether the UT was correct to reverse the FTT's decision on certain matters where, for HMRC, to do so would mean the UT interfering with findings of fact by the FTT. The Court of Appeal upheld the decision of the UT on those matters, finding that the UT had corrected errors of law, not findings of fact.
Issue 6: Whether the UT was correct in finding that SSE did not need to apply for permission to appeal against the FTT's ruling in order to raise a point before the UT. In coming to its conclusion, the UT referred to the “venerable principle”, ie that the task of the FTT and UT is to arrive at the collection of the correct amount of tax. The Court of Appeal disagreed with the UT, ruling that argument based on the venerable principle cannot override the statutory requirement for permission to appeal.
The Court of Appeal dismissed HMRC's appeal with the exception of with regard to issue 6.
The Court of Appeal has endorsed the UT's narrow interpretation of the words “tunnel” and “aqueduct” for the purposes of capital allowances for plant and machinery.
As the Court of Appeal noted, it took three years for the hydroelectric power plant to be constructed and some ten years from the date of completion for the tax treatment of the expenditure to be resolved. If there is a point of general application to be drawn from this case, perhaps it relates to the challenges of applying the capital allowances rules and agreeing the position with HMRC.
Mr Timothy Brennan QC and Aparna Nathan QC (instructed by General Counsel and Solicitor for HMRC) appeared for the appellants
Jonathan Peacock QC and Michael Ripley appeared for the respondent
[1] This appeal concerns the extent to which the Respondent, SSE Generation Ltd (“SSE”), is entitled to claim capital allowances for the expenditure that it incurred on plant when constructing the Glendoe Hydro Electric Power Scheme near Fort Augustus above Loch Ness in the Highlands of Scotland (“the Scheme”). The Scheme was opened by Her Majesty the Queen in June 2009, less than three years after the construction work first broke ground. The arguments about the tax treatment of various components that make up the project, however, still remain to be resolved over ten years after the project was completed.
[2] HMRC issued closure notices to SSE for the tax years ending 31 March 2006 to 31 March 2012. They concluded that SSE's profits had been understated in those years as a result of claims made by SSE to excessive capital allowances, contrary to the provisions in Part 2 of the Capital Allowances Act 2001. SSE appealed against the notices to the First-tier Tribunal (Tax Chamber) (“the FTT”). The FTT (Judge Kevin Poole) released its decision on 31 July 2018: [2018] TC 06618. The FTT decided that SSE was entitled to claim allowances for some of the disputed items but upheld HMRC's view on others. HMRC lodged an appeal before the Upper Tribunal in respect of some of the items which the FTT had found did give rise to allowable expenditure. The Upper Tribunal disagreed with the FTT's analysis in certain respects and remade the decision largely in SSE's favour. The Upper Tribunal granted permission to appeal to this court on 23 December 2019.
[3] Capital expenditure is not deductible from trading profits for the purpose of computing corporation tax but capital allowances can be claimed for such expenditure if it fulfils certain statutory criteria. The relevant provisions are set out in the Capital Allowances Act 2001 and references to sections, Chapters and Parts in this judgment are to that Act unless otherwise stated. Section 11 provides that allowances are available if the person carries on a qualifying activity and incurs qualifying expenditure. “Qualifying activity” is defined in Chapter 2 of Part 2 and it is common ground that SSE is carrying on a qualifying activity.
[4] Qualifying expenditure is defined by a general rule to which there are various exceptions. The general rule is set out in section 11(4). Expenditure is “qualifying expenditure” if it is spent on plant or machinery wholly or partly incurred for the purpose of a qualifying activity. It is now also common ground that all of the items in dispute in this appeal count as “plant” for this purpose and that they all fall within the general rule. The issue is whether they are taken out of the general rule because they fall into one of the exceptions, largely contained in Chapter 3 of Part 2. The sections in Chapter 3 that are particularly relevant for our purposes are sections 22 and 23. Section 22 contains two exceptions to the general rule. The first limb, in section 22(1)(a), excepts expenditure “on the provision of a structure or other asset in List B”. Section 22(2) clarifies that the “provision” of a structure includes its construction or acquisition. List B sets out seven groups of items and List B Item 1 includes tunnels and aqueducts. The FTT and the UT had to consider whether some elements of the Scheme are properly described as tunnels or aqueducts for this purpose. That issue is also before us. If so, the plant falls outside the general rule, meaning that no capital allowance can be claimed for the expenditure incurred in providing it. Item 7 of List B is a sweep-up item that brings within List B all structures not covered by Items 1 to 6. However, there are some structures carved out of Item 7, including structures which count as “industrial buildings”. So if a structure does not fall within any of Items 1 to 6 of List B and it is an industrial building, it does not fall within List B at all and so is not excluded from the general rule by section 22(1)(a). It is common ground in the appeal that if all the items of plant in dispute are properly described as structures, then they do all fall within the definition of “industrial buildings”, so that if the plant does not constitute a “tunnel” or an “aqueduct” then it is not excluded from the general rule by section 22(1)(a) because it is not swept up by List B Item 7.
[5] The second exception contained in section 22 is that in section 22(1)(b). That excludes “expenditure on any works involving the alteration of land”. One of the important issues in the appeal is the relationship between section 22(1)(a) and (b). Are they intended to be mutually exclusive, such that if the plant in question counts as a “structure” it is either excluded or not by section 22(1)(a) without needing to consider section 22(1)(b)? Or do the two limbs overlap so that if, despite being a structure, the plant is not excluded from the general rule by section 22(1)(a), one must then go on and consider whether it falls within section 22(1)(b) and is disallowed via that route.
[6] Section 22 has to be read subject to section 23. Section 23 lists expenditure which is “unaffected” by...
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