SSE Generation Limited v The Commissioners for Her Majesty's Revenue & Customs, TC 06618
| Jurisdiction | UK Non-devolved |
| Judge | Kevin POOLE |
| Judgment Date | 31 July 2018 |
| Neutral Citation | [2018] UKFTT 0416 (TC) |
| Respondent | The Commissioners for Her Majesty's Revenue & Customs |
| Appellant | SSE Generation Limited |
| Reference | TC 06618 |
| Court | First-tier Tribunal (Tax Chamber) |
– plant and machinery allowances on expenditure incurred in construction and rectification
works on underground hydroelectric power scheme – water intakes, network of aqueducts
leading to reservoir, underground headrace and tailrace, caverns housing the generating
equipment and various other tunnels and conduits considered – appeal allowed in part
FIRST-TIER TRIBUNAL
TAX CHAMBER
SSE GENERATION LIMITED
Appellant
-and-
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS
Respondents
TRIBUNAL:
JUDGE KEVIN POOLE
Sitting in public at the Royal Courts of Justice, London on 22-25 May 2017
Jonathan Peacock QC and Michael Ripley for the Appellant
Timothy Brennan QC and Aparna Nathan, instructed by the General Counsel and
Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2018
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DECISION
Introduction
1. This consolidated appeal relates to the treatment, for capital allowance
purposes, of various parts of a hydroelectric power generation scheme at Glendoe, near
Loch Ness in Scotland (“the Scheme”). It considers the eligibility for plant and
machinery allowances, under Part 2 of the Capital Allowances Act 2001 (“CAA”), of
various components of the Scheme. At this stage, the parties sought a decision in
principle on the various disputed items, on the basis that quantum could be determined
at a later stage by the Tribunal if not agreed between the parties. In broad terms, the
total cost of building the Scheme (including rectification works) was some £300
million. Capital allowances have been claimed on some £260 million of that
expenditure, of which HMRC have accepted some £34 million. Approximately £227
million remains in dispute.
The facts
Introduction
2. I received a witness statement and heard oral testimony from Jim Smith,
Managing Director of Generation of the appellant. Mr Smith is an engineer by
background and has been with the appellant and its associated companies since 1988.
During the period relevant to this appeal, he was Director of Major Projects for the
appellant and the Glendoe project was under his supervision. His evidence was clear,
reliable and largely uncontentious.
3. I also received a bundle of documents. Much of the material comprised various
accounts, tax computations and similar documents but it also included a great deal of
detailed material concerning the construction, repair and operation of the Scheme.
4. I also had the benefit of a site visit to the Scheme, which assisted my
understanding greatly.
5. The parties had produced a statement of agreed facts and issues, but
unfortunately (apart from uncontentious administrative or procedural matters
concerning the various corporation tax returns, associated closure notices and so on) no
useful agreements were reached as to the facts.
6. I find the following facts.
Background
7. The group of companies of which the appellant is part was at all material times
a broadly-based energy enterprise, involved in generation, transmission, distribution
and supply of electricity, the production, storage, distribution and supply of gas and
various associated energy services. As at February 2016, it owned and/or operated total
electricity generation capacity of 11,733 MW in the UK and the Republic of Ireland,
including gas, coal-fired and renewable generation methods. Of that total, 3,394 MW
was renewable energy, comprising hydro-electric, pumped storage, onshore wind and
offshore wind capacity.
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8. As part of that portfolio, the appellant constructed and operates the Scheme at
Glendoe near the southern end of Loch Ness, some 35 miles south-west of Inverness
and 2 miles east of Fort Augustus. It is the first large-scale hydroelectric scheme with
a conventional hydraulic head feed built in the UK in the last 50 years, and is capable
of producing 100MW of power. Because of the volume of water available to it from
the relevant catchment areas, it can only operate for some 18% to 20% of the time. The
nature of its design means it can be brought online within a matter of minutes when the
need arises.
9. Construction of the Scheme began in February 2006 and was completed in
December 2008. It was officially opened by Her Majesty the Queen on 29 June 2009.
Shortly after that, it was discovered that major remedial works were required to deal
with problems caused by a subterranean rockfall (see below). Those rectification works
commenced in 2010, the Scheme only becoming fully operational again in August
2012.
10. This appeal is concerned with expenditure incurred in both the original
construction of the Scheme and in the subsequent remedial works.
Summary of the Scheme
11. The Scheme consists of a number of different elements, and there is
disagreement about the treatment, for capital allowance purposes, of most of them.
Starting from the highest point of the Scheme and working down, the various elements
are as follows:
(1) Water intakes. The Scheme uses water, collected over two discrete natural
catchment areas totalling some 75 square kilometres. The water from the two
catchment areas would otherwise all feed into Loch Killin or the River Tarff.
Instead, a network of 17 main water intakes and 8 minor 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. Approximately 60% of the
water used in the Scheme is diverted in this way, only about 40% would
naturally end up in the reservoir referred to below. More detail about the
different types of water intakes is given at [12] to [14] below.
(2) 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 conduits is given at [15] below.
(3) 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.
(4) 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. This was
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