Orsted Ruling Impacts UK Infrastructure Tax Advisers, Investors

The UK Supreme Court’s decision in Orsted settles a fundamental question for tax advisers and infrastructure investors—what counts as spending “on the provision of plant” for the purposes of capital allowances?

By focusing on the language chosen by the UK Parliament, the court clarified that many preconstruction surveys and studies, however essential to project delivery, don’t qualify for relief. The judgment reasserts orthodox principles of capital allowances, resolves conflicting approaches in the lower courts, and impacts structuring and financing large-scale energy and infrastructure projects.

The end of the Orsted saga defines the interpretation of section 11 of the Capital Allowances Act 2001 and narrows the range of expenses receiving relief. By drawing a boundary around the statutory concept of spending incurred “on” the provision of plant, the judgment limits the costs that can be brought within the capital allowances structure.

For tax advisers, the decision underscores the importance of early involvement in project planning. Advisers will need to work closely with commercial teams at an earlier stage to identify when expenses move from an exploratory to a committed activity, and to assess whether costs are likely to satisfy the statutory test.

What Expenditures Qualify?

The Supreme Court’s analysis focused on the statutory language of section 11(4), which provides relief for capital expenditure incurred “on the provision of plant or machinery.” The central question was whether costs associated with preconstruction studies, such as environmental assessments, marine surveys and technical studies, could be treated as spending incurred “on” the provision of plant.

Orsted claimed these preparatory activities were integral to development of the offshore wind farm and therefore should qualify for capital allowances. The court, however, took a more restrictive approach, emphasizing that the statutory test requires the expenditure to be closely connected to the provision of the plant.

Parliament’s choice of the word “on” was interpreted as deliberately narrower than alternatives such as “in connection with” or “relating to,” which would have covered a broader range of costs.

In reaching that conclusion, the court returned to first principles drawn from the leading authorities of Inland Revenue Commissioners v Barclay, Curle and Ben-Odeco v Powlson (Inspector of Taxes).

Those cases underline that the purpose of the capital allowances structure is to relieve the cost of acquiring or constructing tangible business assets. Spending that merely facilitates decision-making, mitigates risk, or supports regulatory approval without directly resulting in the creation or installation of plant, was found to fall outside the statutory remit.

Applying that analysis, the court concluded that costs incurred before a final commitment to the design or installation of wind turbines didn’t qualify for relief.

The judgment leaves open the possibility that capital allowances may be available when preconstruction spending causes substantive changes to the plant’s specifications or design. Ultimately, the pivotal question is whether an expense is closely connected to the provision of the plant, rather than simply preparatory or ancillary.

Implications for Claims

From an investment and financial modeling perspective, the decision is likely to affect how companies appraise and price projects. Excluding substantial pre-development expenses from relief may affect assumptions around cash flow, funding structures, and rates of return.

Industry players will wish to focus on how costs are allocated within projects, as spending incurred at an early stage is now less likely to qualify, even where it’s commercially necessary.

The ruling also has clear compliance implications. Whether an expense qualifies will depend on timing, purpose and factual context, particularly the point at which a project moves from exploratory assessment to delivery.

When claims are made for preconstruction costs, taxpayers will need to demonstrate a sufficiently close connection to the provision of the plant and will have to retain contemporaneous documentation to support their position.

Looking Ahead

The Supreme Court’s judgment highlights an underlying tension between strict statutory construction and broader economic policy objectives.

It confirms that the scope of capital allowances is determined by statutory language rather than by the commercial or strategic importance of specific projects, and that it’s not the court’s role to expand relief beyond the limits set by Parliament. Any extension of relief for pre-development expenses therefore would require legislative intervention.

The issue isn’t new: The government previously indicated an intention to consult on the tax treatment of project pre-development costs, but that was postponed following the Court of Appeal’s decision in favor of the taxpayer.

Considering the Supreme Court’s ruling, the government may revisit the question of whether the current framework appropriately supports the development of major infrastructure projects, particularly those that meet the government’s net-zero ambitions.

For the time being, the legal position is clear. Capital allowances are restricted to spending that is closely connected to the provision of plant, and preparatory costs won’t qualify unless they can be shown to play an immediate role in determining the specification or installation of qualifying assets.

Until the statutory framework is revisited, taxpayers and advisers will need to plan on the basis that relief for preconstruction spending is the exception rather than the norm.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Anastasia Nourescu is a partner in the tax disputes department at Stewarts.

Mikolaj Kudlinski is an associate in the tax litigation and resolution team at Stewarts.

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